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recessionary or inflationary gap exists

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In each of the following cases, either a recessionary or inflationary;gap exists. Assume that the aggregate supply curve is;horizontal so that the change in real GDP arising from a shift;of the aggregate demand curve equals the size of the shift of;the curve. Calculate both the change in government purchases;of goods and services and the change in government transfers;necessary to close the gap.;a. Real GDP equals $100 billion, potential output equals $160;billion, and the marginal propensity to consume is 0.75.;b. Real GDP equals $250 billion, potential output equals;$200 billion, and the marginal propensity to consume is;0.5.;c. Real GDP equals $180 billion, potential output equals;$100 billion, and the marginal propensity to consume is;0.8.

 

Paper#22621 | Written in 18-Jul-2015

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