4. In the US the unemployment rate for January 2000 was 4.0%. In January 2000, the US had GDP of $10.04 trillion, while potential GDP for the same year was $9.47 trillion. Assume the marginal propensity to consume is 0.93. a. What is the GDP gap in January 2000? b. Using the concept of the spending multiplier, in theory, how much would government spending have to change to close the gap? c. Using the concept of the tax multiplier, in theory, how much would taxes have to change to close the gap?

4. In the US the unemployment rate for January 2000 was 4.0%. In January 2000, the US had GDP of $10.04 trillion, while potential GDP for the same year was $9.47 trillion. Assume the marginal propensity to consume is 0.93. a. What is the GDP gap in January 2000? b. Using the concept of the spending multiplier, in theory, how much would government spending have to change to close the gap? c. Using the concept of the tax multiplier, in theory, how much would taxes have to change to close the gap?

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter9: Aggregate Demand

Section: Chapter Questions

Problem 5.11P

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