Data is provided below for a small closed economy. Output/Income = 10,000 Consumption = XXXXXXXXXXY - T) Investment = 400 Taxes = 2,000 Government expenditure = 2,000 Assuming that fiscal policy has a...

Data is provided below for a small closed economy.

Output/Income = 10,000

Consumption = 600 + 0.75(Y - T)

Investment = 400

Taxes = 2,000

Government expenditure = 2,000

Assuming that fiscal policy has a multiplier effect and that investment and taxes remain unchanged, what will happen to output if government expenditure decreased by 500?

Select one:

1. It would increase by 500


2. It would decrease by 667


3. It would decrease by 500


4. It would increase by 2,000


5. It would decrease by 2,000


6. It would increase by 667