Inflationary Gap: At the level of full employment, if the value of the real GDP is greater than the value of potential GDP, it leads to emergence of inflationary gap. Recessionary Gap: At the level of full employment, if the value of the potential GDP is greater than the value of real GDP, it leads to emergence of recessionary gap. Marginal Propensity to Consume ( MPC ): It is that proportion of amount which the consumer pays for consumption of goods and services and it does not include the savings of the consumer. Formula to calculate multiplier is, ….(I) Here, MPC is marginal propensity to consume. a. Change in government purchases of goods and services when MPC is 0.75.

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Chapter 13.A, Problem 2P

To determine

Concept Introduction:

Inflationary Gap:

At the level of full employment, if the value of the real GDP is greater than the value of potential GDP, it leads to emergence of inflationary gap.

Recessionary Gap:

At the level of full employment, if the value of the potential GDP is greater than the value of real GDP, it leads to emergence of recessionary gap.

Marginal Propensity to Consume ( MPC ):

It is that proportion of amount which the consumer pays for consumption of goods and services and it does not include the savings of the consumer.

Formula to calculate multiplier is,

….(I)

Here,

MPC is marginal propensity to consume.

a.

Change in government purchases of goods and services when MPC is 0.75.

b.

To determine

Change in government purchases of goods and services when MPC is 0.5.

c.

To determine

Change in government purchases of goods and services when MPC is 0.8.

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Not use ai please