The economy of Morin is shown in the figure below. Price Level 170 150 130 110 90 The Economy of Morin 70 460 480 500 520 540 560 580 600 Real GDP AD AS a. If potential GDP (LAS) is $565, and the economy is presently in equilibrium, then there is a(n) recessionary + gap of $ billion. billion. b. In order to close this gap aggregate demand must increase by $ c. If every $1 change in government spending leads to a $4 change in aggregate demand, government spending must increase by $ billion. d. Suppose that initially government had a balanced budget. If government increases its spending as in part (c) and tax revenues are 0.2 of real GDP, what will be the government's real budget surplus/deficit at full-employment equilibrium? The government budget would have a deficit of $ 115 billion.

The economy of Morin is shown in the figure below. Price Level 170 150 130 110 90 The Economy of Morin 70 460 480 500 520 540 560 580 600 Real GDP AD AS a. If potential GDP (LAS) is $565, and the economy is presently in equilibrium, then there is a(n) recessionary + gap of $ billion. billion. b. In order to close this gap aggregate demand must increase by $ c. If every $1 change in government spending leads to a $4 change in aggregate demand, government spending must increase by $ billion. d. Suppose that initially government had a balanced budget. If government increases its spending as in part (c) and tax revenues are 0.2 of real GDP, what will be the government's real budget surplus/deficit at full-employment equilibrium? The government budget would have a deficit of $ 115 billion.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 1.4P

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