How much of increase in govt spending would be required

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Reference no: EM13224231

1. Income is $8 billion and the mpe is 0.8. Potential output is $10 billion.
a. What is the recessionary gap?
b. How much of an increase in government spending would be required to close the gap?

2. What will happen to equilibrium income in the following cases?
a. The mpe is 0.8, and autonomous consumption declines by $200.
b. The mpe and mpc are both 0.5, and taxes rise by $400.

Reference no: EM13224231

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