Country X's long run full employment level of Real GDP is estimated to be $22,900,000. However, the actual Real GDP equals to $17,900,000. Data also shows that in country X's Marginal Propensity to Consume (MPC) is calculated to be 91% (0.91). Answer the following questions. 1. What is the dollar value of the Real GDP gap? II. What is country X's Marginal Propensity to Save (MPS)? III. Given that MPC is equal to 91%, calculate the income multiplier for country. IV. Explain what the income multiplier value you obtained in part III means. V. If Real GDP gap in the neighboring country Y is $5,550,000, with income multiplier 9.2, by how much should country Y's "Autonomous consumption" (i.e. spending) change to close the $5,550,000 gap?
Country X's long run full employment level of Real GDP is estimated to be $22,900,000. However, the actual Real GDP equals to $17,900,000. Data also shows that in country X's Marginal Propensity to Consume (MPC) is calculated to be 91% (0.91). Answer the following questions. 1. What is the dollar value of the Real GDP gap? II. What is country X's Marginal Propensity to Save (MPS)? III. Given that MPC is equal to 91%, calculate the income multiplier for country. IV. Explain what the income multiplier value you obtained in part III means. V. If Real GDP gap in the neighboring country Y is $5,550,000, with income multiplier 9.2, by how much should country Y's "Autonomous consumption" (i.e. spending) change to close the $5,550,000 gap?
Chapter15: Fiscal Policy
Section: Chapter Questions
Problem 6SQ
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Transcribed Image Text:Country X's long run full employment level of Real GDP is estimated to be
$22,900,000. However, the actual Real GDP equals to $17,900,000.
Data also shows that in country X's Marginal Propensity to Consume (MPC) is
calculated to be 91% (0.91).
Answer the following questions.
I. What is the dollar value of the Real GDP gap?
II. What is country X's Marginal Propensity to Save (MPS)?
III. Given that MPC is equal to 91%, calculate the income multiplier for country.
IV. Explain what the income multiplier value you obtained in part III means.
V. If Real GDP gap in the neighboring country Y is $5,550,000, with income multiplier 9.2,
by how much should country Y's "Autonomous consumption" (i.e. spending) change to close
the $5,550,000 gap?
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