The following exercises are based on the Appendix to this chapter. 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 must taxes fall to eliminate the GDP gap?
(Since you have posted multiple sub-parts, we will answer the first three for you. If you want a specific sub-part to be answered, post that question alone or specify the question number.)
The gross domestic product refers to the total amount pf all the goods, and services which are produced in an economy over a given period of time. The potential gross domestic product is that level of gross domestic product, which can be produced when all the resources, and technology are used in the most optimal way.
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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 govern- ment expenditures go up $100 billion while taxes fall
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