Subpart (a): Explanation The equilibrium real GDP of $600 occurs at the point, where the real domestic output and aggregate expenditure is equal. At the full employment level, the real domestic output is $700 billion, where the aggregate expenditure is $680 billion. Since the aggregate expenditure is less than the real domestic output, the economy is facing recessionary expenditure gap. At this level, the real GDP will become lesser by $20 billion ( 700 billion − 680 billion ) . To eliminate the recessionary expenditure gap, it is required to increase the aggregate expenditure by $20 billion; so that it is equal to the recessionary gap Subpart (b): To determine Inflationary expenditure gap and recessionary expenditure gap. Subpart (c): To determine Inflationary expenditure gap and recessionary expenditure gap.

Inflationary expenditure gap and recessionary expenditure gap.

Macroeconomics

21st Edition

ISBN: 9781259915673

Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.

Publisher: McGraw-Hill Education

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Question

Chapter 11, Problem 9P

Subpart (a):

To determine