The economy of Morin is shown in the figure below. The Economy of Morin Price Level 170 150 130 110 90 90 70 460 480 500 520 540 560 580 600 Real GDP AD AS a. If potential GDP (LAS) is $530, and the economy is presently in equilibrium, then there is a(n) recessionary b. In order to close this gap aggregate demand must Increase by $[ 5 billion. gap of $1 10 billion. c. If every $1 change in government spending leads to a $4 change in aggregate demand, government spending must Increase by $1.25 billion. d. Suppose that initially government had a balanced budget. If government Increases its spending as in part (c) and tax revenues are 0.2 of real GDP, what will be the government's real budget surplus/deficit at full-employment equilibrium? The government budget would have a deficit of $127.5 billion.

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Price Level
The economy of Morin is shown in the figure below.
The Economy of Morin
170
150
130
110
90
70
460 480 500 520 540 560 580 600
Real GDP
AD
AS
a. If potential GDP (LAS) is $530, and the economy is presently in equilibrium, then there is a(n) recessionary ✓ gap of $
b. In order to close this gap aggregate demand must Increase by $
5 billion.
10 billion.
c. If every $1 change in government spending leads to a $4 change in aggregate demand, government spending must increase by $ 1.25
billion.
d. Suppose that initially government had a balanced budget. If government Increases its spending as in part (c) and tax revenues are 0.2 of
real GDP, what will be the government's real budget surplus/deficit at full-employment equilibrium?
The government budget would have a deficit
of $127.5 billion.
Transcribed Image Text:Price Level The economy of Morin is shown in the figure below. The Economy of Morin 170 150 130 110 90 70 460 480 500 520 540 560 580 600 Real GDP AD AS a. If potential GDP (LAS) is $530, and the economy is presently in equilibrium, then there is a(n) recessionary ✓ gap of $ b. In order to close this gap aggregate demand must Increase by $ 5 billion. 10 billion. c. If every $1 change in government spending leads to a $4 change in aggregate demand, government spending must increase by $ 1.25 billion. d. Suppose that initially government had a balanced budget. If government Increases its spending as in part (c) and tax revenues are 0.2 of real GDP, what will be the government's real budget surplus/deficit at full-employment equilibrium? The government budget would have a deficit of $127.5 billion.
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