FIGURE 28.7 Recessionary and inflationary expenditure gaps. The equilibrium and full-employment GDPS may not coincide. (a) A recessionary expenditure gap is the amount by which aggregate expenditures at the full-employment GDP fall short of those needed to achieve the full-employment GDP Here, the $5 billion recessionary expenditure gap causes a $20 billion negative GDP gap. (b) An iflationary expenditure gap is the amount by which aggregate expenditures at the full-employment GDP exceed those just sufficient to achieve the full-employment GDP. Here, the inflationary expenditure gap is $5 billion; this overspending produces demand-pull inflation. AE2 AE, AEo 530 AET 530 510 510 Recessionary expenditure gap = $5 billion Inflationary expenditure gap = $5 billion 490 490 Full Full 45° employment 45° employment 490 510 530 490 510 530 Real GDP Real GDP (а) Recessionary expenditure gap (b) Inflationary expenditure gap Aggregate expenditures (billio ns of dollars) Aggregate expenditures (billions of dollars)

FIGURE 28.7 Recessionary and inflationary expenditure gaps. The equilibrium and full-employment GDPS may not coincide. (a) A recessionary expenditure gap is the amount by which aggregate expenditures at the full-employment GDP fall short of those needed to achieve the full-employment GDP Here, the $5 billion recessionary expenditure gap causes a $20 billion negative GDP gap. (b) An iflationary expenditure gap is the amount by which aggregate expenditures at the full-employment GDP exceed those just sufficient to achieve the full-employment GDP. Here, the inflationary expenditure gap is $5 billion; this overspending produces demand-pull inflation. AE2 AE, AEo 530 AET 530 510 510 Recessionary expenditure gap = $5 billion Inflationary expenditure gap = $5 billion 490 490 Full Full 45° employment 45° employment 490 510 530 490 510 530 Real GDP Real GDP (а) Recessionary expenditure gap (b) Inflationary expenditure gap Aggregate expenditures (billio ns of dollars) Aggregate expenditures (billions of dollars)

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter9: Aggregate Demand

Section: Chapter Questions

Problem 6.13P

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Explain the difference between the government purchases multiplier and the net tax multiplier. If the MPC falls, what happens to the tax multiplier?
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