Question

VV DF G H I J GDP C 5000 5500 6000 6500 7000 Ig G 4400 400 4800 400 5200 400 5600 400 6000 400 200 200 200 200 200 Xn 100 100 100 100 100 c. If full employment output is 5000, 1) Is there an inflationary gap or recessionary gap? 2) How much would government spending need to change to bring about the necessary change to return the economy to full employment equilibrium? 3) Or, how much would taxes have to change to return the economy to full employment?

Answer 1

(as given the table above, MPC = - OC = OY 0.8 400 Soo MPS = I-MPC= 1-0.8= 0.2. Multiplier = I = I = I-MPC loi an I=1.5. 0.2 6. The equilibrium Output in economy is equal to 5500 because GPP (5500) = ct Ig +G+xn at GAP = 5500 yfa 7000 oy= 7ooo - 5500= 1500. oyz Multiplier X OG 06 = 150u = $300.no 2) This is Recessionary gap because actual Output is less than full employment output. ont 3) e represents original equilibrium and Eq Agg. represente new equilibrium in economy. PE Exp: 15 --- a yf, 5000 1) There is Inflationary Cap. b) og = 5000-5500 2-500 - - 100. (reduce 3) ауа — Мс хот -100 = – 0.8 X OT MPS 0.2 OT 100x or orgy = 25.