Keynes and fiscal policy, Assume that a nation’s marginal

Keynes and fiscal policy

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Reference no: EM13737898

For the next two questions you can look at Keynes and fiscal policy:

1. Assume that a nation’s marginal propensity to consume is 0.8, and that its potential GDP exceeds its actual real GDP by $3000 (There is a recessionary gap). By how much should that nations’ government initially change its spending (G) in order to close that GDP gap?

2. Assume that a nation’s marginal propensity to consume is 0.8, and that its actual GDP exceeds its potential GDP by $3000 (There is an inflationary gap). By how much should that nations’ government initially change taxes in order to close that GDP gap?

Reference no: EM13737898

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