a). A recessionary gap is how much GDP needs to increase from the current GDP to achieve full employment. Let us say that we are experiencing a recessionary gap of $36 million. Also assume that the MPC equals .80. The government decides to decrease taxes in order to close the recessionary gap. What will be the tax decrease? b). An inflationary gap is how much GDP needs to decrease from the current GDP to maintain employment while avoiding inflation. Let us say that we are experiencing an inflationary gap of $200 million. The government decides to increase taxes.  Assume that the MPC equals .80. What will be the tax increase?

Q: How much would the government have to change spending to close the gap?

A: There is multiplier effect occur in the economy so there is no need to send the same amount of…

Q: Assume the economy is currently experiencing a 100 billion-dollar recessionary gap. Furthermore,…

A: For finding the change in taxes, tax multiplier needs to be determined.  Tax multiplier= MPC/(1-MPC)…

Q: Assume there is a decrease in the aggregate demand, if expansionary fiscal policy is being used, the…

A: Fiscal policy is the kind of policy using which government adjusts its spending levels and tax rates…

Q: Suppose the government increases expenditures by $50 billion and the marginal propensity to consume…

A: Aggregate demand is the sum of Consumption, Investment, government spending and net export. So, AD =…

Q: The following data are for the economy of Moksha.   C = 30 + 0.6Y   G = 150 I = 60   XN = 50 −…

A: C=30 + 0.6Y  ---------> Consumption function G=150 -------------> Government expenditure I=60…

Q: Suppose economists observe that an increase in government spending of $11 billion raises the total…

A: Crowding Out Effect:In economics, the Crowding Out Effect means the situationwhere increased…

Q: The Japanese government decides to stimulate the economy by increasing direct spending by $70…

A: Given,Increase in government spending: △G=$70 billionFinal change in real GDP: △Y=$280 billion The…

Q: Assume that a hypothetical economy with an MPC of 0.75 is experiencing a severe recession.…

A: Answer: Given, MPC=0.75 (a). The formula for the increase in aggregate demand is given below: Change…

Q: In each case below a particular fiscal policy affects an economy's AD curve via the spending…

A: Spending Multiplier: The spending multiplier measures the impact of changes in autonomous spending…

Q: In each case below a particular fiscal policy affects an economy's AD curve via the spending…

A: The objective of the question is to calculate the spending multiplier and find the direction and…

Q: Assume taxes are zero and an economy has a consumption function of C = 0.68 (Yd) + $237.99.  What is…

A: The marginal propensity to consume (MPC) index measures the proportion of income that is spent on…

Q: If the marginal propensity to consume was 0.7, how large would each of the following need to be in…

A: The marginal propensity refers to the amount, by which consumption changes when income changes. It…

Q: Economist C favors tax cuts over increases in government spending. This means that Economist C…

A: Government expenditure(G) multiplier and tax(T) multiplier shows the change in the total output(Y)…

Q: Consider the data of country E. Suppose an event happened and the price level and real GDP changed…

A: 1.To determine which AD-AS graph correctly shows the changes in SRAS, LRAS, and AD based on the…

Q: Consider an economy that is operating below the full-employment level of real GDP. What would be the…

A: Meaning of Gross Domestic Product (GDP): The term gross domestic product refers to the situation…

Q: Suppose a closed economy with no government spending which in equilibrium is producing an output and…

A: Given information, Actual output generated: 2250 Marginal propensity to consume: 0.75 Potential…

Q: Assume that a hypothetical economy with an MPC of 0.8 is experiencing a severe recession.…

A: Given information: mpc = 0.8   * Government spending multiplier: ∆Y∆G = 11-mpc   * Tax multiplier:…

Q: All of the following are likely to be effective at eliminating a recessionary gap except one. Which…

A: Recessionary gap: It means a situation wherein the real GDP is lower than the potential GDP at the…

Q: Given the b=mpc=.8, and Yf-Ye=400, how much government spending is necessary to close the…

A: Government spending or expenditure includes all government consumption, investment, and transfer…

Q: DEFINE FISCAL POLICY. WOULD THE INCREASE OF $100 IN GOVERNMENT SPENDING HAVE THE SAME EFFECT ON GDP…

A: Fiscal policy is known as stabilizing policy in which government changes government spending or…

Q: Suppose that the MPC is 0.8 and that $18 trillion of real GDP is currently being demanded. The…

A: GDP: It means the monetray value of finished goods and services that are produced in the country.

Q: Which of the following is not an example of government spending hike that will increase aggregate…

A: The government expenditure would result in the expenditure of the government in infrastructure and…

Q: How do induced taxes and​ needs-tested spending change during a​ recession? What is the effect of…

A: The induced taxes refer to the taxes which vary according to the national income or the gross…

Q: If the MPC in an economy is 0.7, the government could shift the aggregate demand curve rightward by…

A: The marginal propensity to consume (MPC) is defined as the proportion of an aggregate raise in pay…

Q: The image attached, is a screen shot of the question. The question is: If the marginal propensity…

A: Please find the answer below.

Q: 29. If full-employment real GDP in this economy is $3,500 billion, how much of an increase in…

A: The multiplier effect refers to any adjustments in consumer spending that occur after any real GDP…

Q: An economy's IS curve represents the following markets. Goods: slc = 4 MPC = 0.7 G = 10 T = 9…

A: C=a+b(Y-T) C=4+0.7(Y-9) T=9 MPC=0.7 G=10 I=10-90r r = 0.047

Q: You are the Secretary of the Treasury, working with the president to implement appropriate policies.…

A: Fiscal policy is set by the government to influence economic growth. It  is a change in government…

Q: Suppose the government increases expenditures by $100 billion and the marginal propensity to consume…

A: The Marginal Propensity to Consume is a measure in economics that represents the proportion of an…

Q: False : A recessionary gap can be caused by consumers who spend more than the

A: Recessive gap. Occurs when real GDP (more than full employment) falls below potential GDP, which…

Q: y'-t y-t C If taxes today (t) are lowered, and taxes tomorrow (t') are increased, what happens to…

A: In economics, a consumption schedule may also refer to a table or graph that shows the relationship…

Q: Expenditures that would exist at a zero level of income are called induced expenditures:  True or…

A: There are two types of expenditure : Induced expenditure and Autonomous expenditure  Induced…