Consumption $550 Investment $200 Exports $60 Imports $90 Government Spending $100 Taxes $70 Potential Real Output (Long run Real Output) $800 The above macroeconomic data are from the economy in 2019. Dollar values are measured in billions of 2019 dollars. (a) Is the economy facing a recessionary gap, an inflationary gap, or neither? Explain using numbers. (b) Based on your answer to part (a), how will the economy adjust in the long run in the absence of any government policy action? Explain.

Consumption $550 Investment $200 Exports $60 Imports $90 Government Spending $100 Taxes $70 Potential Real Output (Long run Real Output) $800 The above macroeconomic data are from the economy in 2019. Dollar values are measured in billions of 2019 dollars. (a) Is the economy facing a recessionary gap, an inflationary gap, or neither? Explain using numbers. (b) Based on your answer to part (a), how will the economy adjust in the long run in the absence of any government policy action? Explain.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 4TY

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Question

Consumption	$550
Investment	$200
Exports	$60
Imports	$90
Government Spending	$100
Taxes	$70
Potential Real Output (Long run Real Output)	$800

The above macroeconomic data are from the economy in 2019. Dollar values are measured in billions of 2019 dollars.

(a) Is the economy facing a recessionary gap, an inflationary gap, or neither? Explain using numbers.

(b) Based on your answer to part (a), how will the economy adjust in the long run in the absence of any government policy action? Explain.

Branch of economics that analyzes the behavior and performance of an economy as a whole. It focuses on the study of aggregates and evaluates changes related to unemployment, gross domestic product, inflation, monetary and fiscal policies of the government.

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