Government spending increase to eliminate the gdp gap

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Reference no: EM131392006

Assume that equilibrium real GDP is $800 billion, potential real GDP is $900 billion, the MPC is .80, and the MPI is .40. What is the size of the GDP gap?

How much must government spending increase to eliminate the GDP gap?

How much must taxes fall to eliminate the GDP gap?

If government spending and taxes both change by the same amount, how much must they change to eliminate the recessionary gap? Suppose the MPC is .90 and the MPI is .10. If gov- ernment expenditures go up $100 billion while taxes fall $10 billion, what happens to the equilib- rium level of real GDP?

Reference no: EM131392006

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