Question

Help please

Please round calculations to two decimal places. a. (5 pts) Calculate the total change in spending given the information below Marginal Propensity to Consume .73 Decrease in Spending = $497 M b. (10 pts) Please illustrate assuming the economy was operating at full employment prior to the change in part a. Does a GDP gap exist? If so, what type? NOTE: Only 1 file can be uploaded for this question. If you have any trouble uploading the file it must be labeled and attached in the assignment comments. I do not accept any files sent via email. Upload Choose a File

Answer 1

b) Before the decrease in spending the aggregate demand is AD1. After the decrease in spending the AD curve shifts downwards to AD2 and economy is below the full employment level. The gdp gap is represented by Y2 -Yf. This is a recessionary gap.

b) Before the decrease in spending the aggregate demand is AD1. After the decrease in spending the AD curve shifts downwards to AD2 and economy is below the full employment level. The gdp gap is represented by Y2 -Yf. This is a recessionary gap.