Suppose that full employment potential real GDP is $400 million
Question # 00567853
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Updated on: 07/29/2017 07:38 AM Due on: 07/29/2017
Suppose that full employment potential real GDP is $400 million, but the economy is currently in a short run equilibrium producing a quantity of 200 million. The marginal propensity to consume for the economy is at .8. Use the information to answer the following questions.
a. Is there a gap in the economy? If so, what type of a gap and how much?
b. Using fiscal policy, would there be an increase or a decrease in government spending? And how much would it be (a dollar amount)?
c. Using fiscal policy, would there be an increase or a decrease in taxes? And how much would it be (a dollar amount)?
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Solution: Suppose that full employment potential real GDP is $400 million