Consider an economy described by the following set of equations: c = 120 +0.08Y I = 320 G = 480 X-IM = -80 T = 400 a. Find the actual level of GDP. b. If full employment comes at Y = 1000, would there be a recessionary gap or an inflationary gap? c. What spending changes will be necessary to eliminate this gap? d. What amount of tax changes will be necessary to eliminate this gap? e. What are some policies action that can be taken.

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: From the preceding data, you know that the level of saving in the economy last year was $ billion…

A: Consumption function = C = C0 + Cy Where, C = Consumption  C0 = Autonomous Consumption  Cy = MPC Y =…

Q: Keynes believed that prices and wages were rigid or fixed until the economy reaches equilibrium full…

A: "Keynesian economics" is a type economic theory that is established by the British economist John…

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: How could you estimate the real GDP gap?

A: To find : How economy is in equilibrium and what is real GDP gap.

Q: a). A recessionary gap is how much GDP needs to increase from the current GDP to achieve full…

A: We know that if there is no change in government expenditure, then a change in tax can lead to a…

Q: Consider that the macroeconomy is hit by aftershocks. Exports decrease by $40 billion and imports…

A: Since you have posted multiple questions, we will provide the solution only to the first question as…

Q: b. Consider the following Keynesian Model: C= 50+0.4Yd T=40 I=0.2Y X = 16 G= 30 M= 20 a. Using the…

A: Income is the summation of consumption and saving. Consumption is the summation of autonomous…

Q: Economic activity is subject to fluctuations (booms and slumps). Which of the following statements…

A: "Business cycle measures the fluctuations in the economy over time." "Automatic stabilisers…

Q: In the “complete Keynesian model”, the investment functions was I = I0 - f(i). An analyst now…

A: When investment is the function of national income, such investment is called induced investment.

Q: Draw a graph of a consumption function (with disposable income on the x-axis and consumption on the…

A: Consumption function in terms of disposable income can be written asC=a+bYdWhere a is autonomous…

Q: Suppose that consumption is 70 million and disposable income is 350 and that the economy is…

A: A recessionary GDP gap refers to when natural GDP is higher than actual GDP. This implies actual GDP…

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

A: Given MPC=0.7 G=10 T=9 I=10-90r r=0.047 Initially, the value of aggregate expenditure is Y0=44.9 The…

Q: If the economy is in equilibrium, how can a recessionary gap exist, and how will producers respond…

A: The recessionary gap occurs due to deficient demand. When demand is not sufficient to reach full…

Q: You are given the following information about aggregate demand at the existing price level for an…

A: A GDP gap refers to the difference between a country's current GDP and its potential GDP, as shown…

Q: hich of the following will most likely cause movement along the consumption function?   a. A change…

A: Definition of  Consumption Function : A consumption function shows  what is the consumption at…

Q: where Y is the country's real GDP, P is the price level (GDP deflator), G is government purchases of…

A: (Note: Since 1d and 2 are different only 1d has been solved).     Question 1d: The macroeconomic…

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: TRUE OR FALSE WITH REASON. 1. In a recessionary gap, the Real GDP that the economy is producing is…

A: In a recessionary gap, the Real GDP that the economy is producing is lesser than Natural Real GDP.…

Q: In order to break stagflation, the government has to increase expenditure on food subsidies in the…

A: AD-AS equilibrium: Aggregate demand refers to the total demand for commodities and services made by…

Q: n economy is described by the following equations: C = 1600 + 0.8(Y – T) I = 1000 G = 1800 T =…

A: C = 1600 + 0.8(Y – T) I = 1000 G = 1800 T = 3000 + tY

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: 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: 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: By how much would government purchases have to change in order to eliminate any output gap?

A: The amount of money spent by the government on products and services utilized for public objectives,…

Q: The marginal propensity to consume for this economy is …………. if income rises from $9000 to $10000…

A: In economics, the consumption function describes the relationship between consumer spending and the…

Q: Suppose the economy experiences a "supply shock" due to a fall in oil prices. As a result, the…

A: Gross Domestic Product (GDP) refers to the total or final value of all the goods and services that…

Q: following graph shows the total expenditure line (TE) for an economy where current equilibrium…

A: Real GDP is where demand and supply meets. athus, real GDP = $400 Billion  as potential GDP is less…

Q: pose actual real GDP is $7.54 trillion, potential real GDP is $12.32 trillion, and the marginal…

A: The output gap is the difference between Actual output and potential output. If economy is below its…

Q: The country is experiencing a serious rise in inflation which the government wants to control…

A: The term "GDP" (gross domestic product) refers to the entire worth of goods and services generated…

Q: an Learning What is the eventual effect on real GDP if the government increases its purchases of…

A: DISCLAIMER  “Since you have asked multiple questions, we will solve the first question for you. If…

Q: Troll Island is a small island nation that recently experienced an autonomous change in aggregate…

A: The term “multiplier” is defined as the measure of the amount by which the equilibrium level of…

Q: ational Income Real GDP (Y).. 8000....... 9000....... 10000. 1000...... the example, the marginal…

A: Marginal propensity to save (MPS) measures the change in savings due to a change in income.  MPS =…

Q: . What is the equilibrium rate of real GDP?        $  __ billion   b. If full-employment real…

A: Aggregate demand represents the total amount of goods and services that buyers in an economy are…

Q: Discuss characteristics of an economy that helps itself correct from a recessionary gap.

A: Potential GDP is the GDP that an economy can produce, given all its resources are at full employment…

Q: Consider the graph at right showing an economy in recession. Aggregate demand is currently at AD.…

A: The conce­pt of aggregate demand pe­rtains to the collective desire for goods and services within an…

Q: Suppose actual real GDP is $13.37 trillion, potential real GDP is $12.33 trillion, and the marginal…

A: The worldwide economy and commerce across borders have an immense impact on the financial…

Q: The consumption function macroeconomics is often written as C= a + b(Y-T) where b expresses:   a.…

A: Meaning of Macroeconomics: The term macroeconomics refers to the situation of economic and…

Q: Consider the hypothetical country of Kluane. Suppose that national income in Kluane is $30 billion,…

A: The consumption function is an economic concept that represents the relationship between disposable…

Q: Consider an economy that uses exclusively labor and capital to produce. Suddenly, the government of…

A: Permanently increase in Government expenditure means government either produces public goods and…

Q: The country is experiencing a serious rise in inflation which the government wants to control…

A: Gross domestic product is the market value of all goods and services produced in the economy in a…

Q: eggregate expenditure (AE) curve

A: The total expenditure made by everyone during a duration calculated in aggregate expenditure (AE).…

Q: Given that national income is $900 and consumption expenditure is $740 what is the average…

A:

Q: Suppose an economy is operating at point A on the graph showing aggregate demand. A decrease in the…

A: Aggregate demand curve states the inverse relationship between the price level and aggregate output.…

Q: The graph gives an economy's AE curve when the economy is in long-run equilibrium. Equilibrium…

A: Aggregate expenditure refers to the total amount of spending in an economy over a specific period,…

Q: You are given the following data C=130+0.5 (1-t) Y (Consumption) T = tY (Tax revenue) (Investment)…

A: Given Information Consumption (C) = 130 + 0.5 (1-t)YTax Revenue (T) = tYInvestment (I) = 120Tax Rate…