You are given the following information about the Aggregate Demand and Aggregate Supply in an economy of Gombakland. Amount of real domestic output demanded, billions Price level (price index) Amount of real domestic output supplied, billions $ 60 350 $240 120 300 240 180 250 180 240 200 120 300 150 60 a) Assuming the full-employment level of GDP is $220 billion, identify and describe the type of macroeconomic problem currently faced by Gombakland. Draw an appropriate diagram with correct labels to support your answer. b) Given that the marginal propensity to consume (MPC) for Gombakland is 0.5, calculate the required change in government spending which would be most consistent with closing the GDP-gap. Then calculate the required change in taxation as an alternative policy to achieve the same result. Explain your answer and show the effect of this policy intervention in the same diagram you have drawn in part (a).
- You are given the following information about the Aggregate Demand and
Aggregate Supply in an economy of Gombakland.
|
Amount of real domestic output demanded, billions |
(price index) |
Amount of real domestic output supplied, billions |
|
$ 60 |
350 |
$240 |
|
120 |
300 |
240 |
|
180 |
250 |
180 |
|
240 |
200 |
120 |
|
300 |
150 |
60 |
a) Assuming the full-employment level of
b) Given that the marginal propensity to consume (MPC) for Gombakland is 0.5, calculate the required change in government spending which would be most consistent with closing the GDP-gap. Then calculate the required change in
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