Explain how much does government purchases have to change

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Q. 1) If MPS is 0.25 and economy has a recessionary gap of $5 billion, illustrate what is size of GDP Gap?

2) Assume economy is in long-run equilibrium. Aggregate Demand n shifts left and economy contracts by $50 billion. Government wants to change its spending in order to avoid a recession. If crowding-out effect is always half as strong as multiplier effect and if MPC equals 0.9, by Explain how much does government purchases have to change?

Reference no: EM1370985

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