3. In a given economy potential GDP is at $4,000,000. If equilibrium/actual GDP is $3,200,000, determine how large of a recessionary gap this economy has. If the MPC is .8, solve for how much investment spending alone will have to change to close this gap. 4. If the current equilibrium GDP value is $2,750,000 and investment spending decreases by $150,000 with an MPC of 0.8, solve for the new equilibrium GDP.

3. In a given economy potential GDP is at $4,000,000. If equilibrium/actual GDP is $3,200,000, determine how large of a recessionary gap this economy has. If the MPC is .8, solve for how much investment spending alone will have to change to close this gap. 4. If the current equilibrium GDP value is $2,750,000 and investment spending decreases by $150,000 with an MPC of 0.8, solve for the new equilibrium GDP.

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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2. In a given economy potential GDP is at $2,000,000. If equilibrium/actual GDP is $1,300,000, determine how large of a recessionary gap this economy has. If the MPC is .8, solve for how much investment spending alone will have to change to close this gap.
3. Suppose an economy with the following characteristics. Y = Real GDP or national income T= Taxes = 0.3Y C = Consumption = 140 + 0.9(Y – T) I= Investment = 400 G= Government spending = 800 X = Exports = 600 M= Imports = 0.15Y Given the information above, a. What is the saving function in this economy? b. What is this economy's spending multiplier? c. What is the equation for Aggregate Expenditures (AE) in this economy? d. Given AE equation, what is total demand for this economy! e. Derive Aggregate Demand (AD) curve and Long Run Aggregate Supply (LRAS) curve based on the equation you answered!
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