Assume That an Economy's Spending Multiplier Is 4

Multiple Choice

Assume that an economy's spending multiplier is 4. If this economy is in equilibrium at $2,000 billion, then which one of the following actions will bring it to a full-employment equilibrium of $1,500 billion?

A) $500 billion spending cut.
B) $500 billion spending increase.
C) $125 billion spending cut.
D) $125 billion spending increase.