Answered: 2. In a given economy potential GDP is…

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,

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

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.

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Explanation
Figure 3 45° line 20 16 12 1.2 4 Disposable income (trillions of 2005 dollars) 8 12 16 20 24 Refer to Figure 3. The marginal propensity to consume equals * 0.80 0.90 0.75 0.85 Consumpfion expenditure (trillions of 20050 dollars}
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