Assume that equilibrium real GDP is $ 800 billion, potential real GDP is $ 950 billion, the MPC is .80, and the MPI is .40. 11.What is the size of the GDP gap? 12.How much must government spending increase to eliminate the GDP gap? 13. How much taxes fall to eliminate the GDP gap?
Chapter 11
Answer exercises 11-14 on the basis of the following information. Assume that equilibrium real GDP is $ 800 billion, potential real GDP is $ 950 billion, the MPC is .80, and the MPI is .40.
11.What is the size of the GDP gap?
12.How much must government spending increase to eliminate the GDP gap?
13. How much taxes fall to eliminate the GDP gap?
14. If government spending and taxes both change by the same amount, how much must they change to eliminate the recessionary gap?
15. Suppose the MPC is .90 and the MPI is .10. If government expenditures go up $ 100 billion while taxes fall $ 10 billion, what happens to the equilibrium level of real GPD?
Use the following equations for exercises 16-18
C = $ 100 + .8 Y
I = $ 200
G = $ 250
X = $100 - .2 Y
16. What is the equilibrium level of real GDP?
17. What is the new equilibrium level of real GDP if government spending increases by $ 150?
18. What is the new equilibrium level of real GDP if government spending and taxes both increases by $ 150?
19. Make a graph showing the spending and tax revenue of your satate government for as many years as you can find (use the government of your home country if you are not from the United States).
a. What trends do you notice?
b. What spending categories make up the largest share of the state budget?
c. What are the largest sources of revenue?
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