Suppose the level of potential GDP is $6,000 billion, but the equilibrium level of GDP is $7,500 billion. If the marginal propensity to consume is 0.67, how much should government spending be decreased to eliminate the inflationary gap? O $250 billion $1500 billion $500 billion O $125 billion

Suppose the level of potential GDP is $6,000 billion, but the equilibrium level of GDP is $7,500 billion. If the marginal propensity to consume is 0.67, how much should government spending be decreased to eliminate the inflationary gap? O $250 billion $1500 billion $500 billion O $125 billion

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter8: Aggregate Demand And The Powerful Consumer

Section: Chapter Questions

Problem 8DQ

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Question

Suppose the level of potential GDP is $6,000 billion, but the equilibrium level
of GDP is $7,500 billion. If the marginal propensity to consume is 0.67, how
much should government spending be decreased to eliminate the inflationary
gap?
O $250 billion
$1500 billion
O $500 billion
O $125 billion

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