(Answered) Economy to equilibrium at potential GDP

Management Studies

Problem: Suppose that real GDP is currently $13.0 trillion and potential real GDP is$14.0 trillion, or a gap of $1,000billion. The government purchases multiplier is 5.0. and the tax multiplier is 4.0. Holding other factors constant, by how much will government purchases need to be increased to bring the economy to equilibrium at potential GDP ?Government spending will need to be increased by $____ billion. Explain your answers and provides examples.

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Business Management, Management Studies

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