Homework Answers
Ans 1)
Equilibrium GDP of Economy is $500 bn dollars per year
Because equilibrium means AD equals to AS
Ans 2)
Real output Gap = actual output- possible output=500-1200=-$700 bn dollars
It is called recessionary output Gap when actual gdp is less than potential gdp.
Ans 4)
∆Y/∆I=Investment multiplier=4
We need ∆Y=700 therefore we need 700/4=175 bn dollars of investment to fill the recessionary gap
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