Calculate both the change in government purchases of goods

Reference no: EM13243426

In each of the following cases, either a recessionary orinflationary gap exists. Assume that the aggregate supply curveis horizontal so that the change in real GDP arising from a shiftof the aggregate demand curve equals the size of the shift of the curve. Calculate both the change in government purchases ofgoods and services and the change in government transfers necessary to close the gap.

a. Real GDP equals $100 billion, potential outputequals $160 billion, and the marginal propensity to consume is0.75.

b. Real GDP equals $250 billion, potentialoutput equals $200 billion, and the marginal propensity to consumeis 0.5.

c. Real GDP equals $180 billion, potentialoutput equals $100 billion, and the marginal propensity to consumeis 0.8.

Reference no: EM13243426

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