(Answered) Questionclosing the gdp gapin a closed economy the

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QUESTION:

Closing the GDP gap

In a closed economy, the behavioral equations of households, firms and government are given below:

C = 200 + 0.75Yd

I = 160

G = 80

t = 20%

(a) Calculate the aggregate planned expenditure (AE) function.

(b) Find the equilibrium income.

(d) If the government estimates the full-employment income at 1200, is there an inflationary or a recessionary gap?

(e) By how much should G be increased or decreased to remove the gap?

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