An economy is operating with output $400 billion below its natural rate, and fiscal policy-makers want to close this recessionary gap. The central bank agrees to adjust the money supply to hold the interest rate constant, so there is no crowding out. The marginal propensity to consume is 4/5, and the price level is completely fixed in the short run. In what direction and by how much would government spending need to change to close the recessionary gap? Explain.

You are watching: Refer to the table for moola given below to answer the following questions.


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Complete the following table:Instructions: Enter your responses as whole numbers.

   Real Output Demanded (in $ billions) by 
PriceLevelConsumers+Investors+Government+Net Exports=Aggregate DemandAggregate Supply
12080 15 20 10 ?320
11092 16 20 12 ?260
100104 17 20 14  215
90116 18 20 16  200
80128 19 20 18  185
70140 20 20 20  175
60154 21 20 22  170

(a) What is the level of equilibrium real GDP?$ billion

(b) What is the equilibrium price level?$

(c) If full employment occurs at a real GDP of $200 billion, what kind of GDP gap exists?

 An inflationary GDP gap
 A recessionary GDP gap

(d) How large is that gap? 

(e) Which macroeconomic problem exists here?

 Unemployment
 Inflation


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lemoneagle304
Complete the following table:Instructions: Enter your responses as whole numbers.

See more: How To God Be The Glory In Latin ? To God Be The Glory

   Real Output Demanded (in $ billions) by 
PriceLevelConsumers+Investors+Government+Net Exports=Aggregate DemandAggregate Supply
12080 15 20 10  320
11092 16 20 12  260
100104 17 20 14  215
90116 18 20 16  200
80128 19 20 18  185
70140 20 20 20  175
60154 21 20 22  170

(a) What is the level of equilibrium real GDP?$ billion

(b) What is the equilibrium price level?$

(c) If full employment occurs at a real GDP of $180 billion, what kind of GDP gap exists?

 Inflationary gap
 Recessionary gap

Instructions: Enter your value as an absolute number (no negative sign is needed).

(d) How large is that gap?$ billion

(e) Which macroeconomic problem exists here?

 Inflation
 Unemployment

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cerisecat383

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