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Multiplier effect to close the recessionary gap.

1. Income is $8 billion and the mpe is 0.8. Potential output is $10 billion.

a. What is the recessionary gap? 2 billion

b. How much of an increase in government spending would be required to close the gap? 400 million

2. Consider the graph on the below.

2446_recessionary gap.jpg

1672_recessionary gap2.jpg


1. Illustrate what are autonomous expenditures?

2.What is the mpe?

3.What is the slope of the AE line?

4.When income is $6,000, what are expenditures?

5.When income is $6,000 what is the value of production?

6.If income is $6,000, is the economy in equilibrium? If not, what will happen to production during the first round of adjustments?

7.What is equilibrium output?

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M922698

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