MACROECONOMICS W/CONNECT
18th Edition
ISBN: 9781307253092
Author: McConnell
Publisher: Mcgraw-Hill/Create
expand_more
expand_more
format_list_bulleted
Question
Chapter 11, Problem 9P
Subpart (a):
To determine
Inflationary expenditure gap and recessionary expenditure gap.
Subpart (b):
To determine
Inflationary expenditure gap and recessionary expenditure gap.
Subpart (c):
To determine
Inflationary expenditure gap and recessionary expenditure gap.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Refer to the table on the next page in answering the questions that follow:a. If full employment in this economy is 130 million, will there be an inflationary expenditure gap or a recessionary expenditure gap? What will be the consequence of this gap? By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the inflationary expenditure gap or the recessionary expenditure gap? Explain. What is the multiplier in this example?b. Will there be an inflationary expenditure gap or a recessionary expenditure gap if the full-employment level of output is $500 billion? Explain the consequences. By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the gap? What is the multiplier in this example? c. Assuming that investment, net exports, and government expenditures do not change with changes in real GDP, what are the sizes of the MPC, the MPS, and the multiplier?
Given the information below, answer the questions that follow.
C = $40 + 0.75Y I = $30 G = $40 X – M = $10
a) What is the equilibrium GDP? Explain why $550 is not the equilibrium.
b) What is the marginal propensity to consume (MPC) in this question? (Explain)
c) What is the multiplier in this question and explain the significance of the multiplier?
a). A recessionary gap is how much GDP needs to increase from the current GDP to achieve full employment. Let us say that we are experiencing a recessionary gap of $36 million. Also assume that the MPC equals .80. The government decides to decrease taxes in order to close the recessionary gap. What will be the tax decrease?
b). An inflationary gap is how much GDP needs to decrease from the current GDP to maintain employment while avoiding inflation. Let us say that we are experiencing an inflationary gap of $200 million. The government decides to increase taxes. Assume that the MPC equals .80. What will be the tax increase?
Chapter 11 Solutions
MACROECONOMICS W/CONNECT
Ch. 11.2 - Prob. 1QQCh. 11.2 - Prob. 2QQCh. 11.2 - Prob. 3QQCh. 11.2 - Prob. 4QQCh. 11.7 - Prob. 1QQCh. 11.7 - Prob. 2QQCh. 11.7 - Prob. 3QQCh. 11.7 - Prob. 4QQCh. 11 - Prob. 1DQCh. 11 - Prob. 2DQ
Ch. 11 - Prob. 3DQCh. 11 - Prob. 4DQCh. 11 - Prob. 5DQCh. 11 - Prob. 6DQCh. 11 - Prob. 7DQCh. 11 - Prob. 8DQCh. 11 - Prob. 1RQCh. 11 - Prob. 2RQCh. 11 - Prob. 3RQCh. 11 - Prob. 4RQCh. 11 - Prob. 5RQCh. 11 - Prob. 6RQCh. 11 - Prob. 7RQCh. 11 - Prob. 8RQCh. 11 - Prob. 9RQCh. 11 - Prob. 1PCh. 11 - Prob. 2PCh. 11 - Prob. 3PCh. 11 - Prob. 4PCh. 11 - Prob. 5PCh. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - Prob. 9PCh. 11 - Prob. 10P
Knowledge Booster
Similar questions
- The following graph shows the total expenditure line (TE) for an economy where current equilibrium output is $400 billion and potential output is $275 billion. The economy is experiencing _________ (a contractionary gap, an inflationary gap) equal to $______ billion. To close the output gap, government purchases could _______ (increase, decreease) by _____ ($50, 150, 75) billion. Thus, the value of the multiplier for this economy is ___________ (1.6667, 1.4545, 0.6, 0.3125, 0.4545). On the previous graph, shift the TE line to show the change in total expenditure necessary to close the output gap.arrow_forwardUsing the table below to answer the following questions. Assume all values represent trillions of dollars. Construct a graph of the Aggregate planned expenditure What is the equilibrium expenditure? Explain what happens at a real GDP of $4 trillion dollars. (Note the aggregate expenditures and the effects on inventories) What are your total autonomous expenditures? What is the marginal propensity to consume? Ignoring imports and income taxes, what is the multiplier? If investment increases by $1.5 trillion, what is the change in real GDP?arrow_forwardHelp with the following exercises please show formula and step by step 1) Assume the MPC is 0.70 and the government increases spending on public school programs by $20 billion. 1a) What is the value of the initial impact on real GDP? 1b) What is the value of the total impact on real GDP? 2. Assume the MPC is 0.75 and policymakers have targeted real GDP to decrease by $300billion. By how much must taxes be increased to achieve this goal?arrow_forward
- The following graph shows the total expenditure line (TE) for an economy where current equilibrium output is $350 billion and potential output is $600 billion. The economy is experiencing _________ (a contractionary gap, an inflationary gap) equal to $______ billion. To close the output gap, government purchases could _______ (increase, decrease) by _____ ($50, 150, 75) billion. Thus, the value of the multiplier for this economy is ___________ (0.7143, 0.5833, 0.4167, 1.6667, 0.6).arrow_forward1. If an economy has an MPC of 0.9 what is the multiplier? 2. If an economy has an MPS of 0.2 what is the multiplier? 3. If an economy has an MPC of .08 and the government needs to close a recessionary gap of 20 Billion dollars how much government spending should occur? 4. If an economy has an MPS of .05 and the government needs to close an inflationary gap of 10 Billion dollars how much should government spending decrease?arrow_forwardWhat is the eventual effect on real GDP if the government increases its purchases of goods and services by $75,000? Assume the marginal propensity to consume (MPC) is 0.75. $ What is the eventual effect on real GDP if the government, instead of changing its spending, increases transfers by $75,000? Assume the MPC has not changed. $ An increase in government transfers or taxes, as opposed to an increase in government purchases of goods and services, will result in an identical eventual effect on real GDP. no change to real GDP. a larger eventual effect on real GDP. a smaller eventual effect on real GDP.arrow_forward
- On the following graph illustrate the impact of a sudden decline in consumer confidence that reduces autonomous consumption by $50 billion. Assume MPC = 0.8. 2. (a) What is the new equilibrium level of real output? (Don't forget the multiplier.) (b) How large is the real GDP gap? (c) What has happened to average prices? AS AD 50100 200 300 400 500 600 700 REAL OUTPUT (in billions of dollars per year) PRICE LEVEL (average price)arrow_forwardThe country is experiencing a serious rise in inflation which the government wants to control through fiscal policy. The Government will decrease spending by $20 million and increase taxes by $15 million. The marginal propensity to consume (MPC) is 0.80. What will be the effect on GDP and by how much? A recessionary gap is how much GDP needs to increase from the current GDP to achieve full employment. Let's say that we are experiencing a recessionary gap of $36 million. Also assume that the MPC equals .80. The government decides to decrease taxes to close the recessionary gap. How much will be the tax decrease? An inflationary gap is how much GDP needs to decrease from the current GDP to maintain employment while avoiding inflation. Let's say that we are experiencing an inflationary gap of $200 million. The government decides to increase taxes. Assume the MPC equals .80. How much will the tax increase be? The government wants to achieve a balanced budget. It therefore increases…arrow_forwardSuppose that the economy is depicted by the following relationship: Expenditures =C+I+G+X where: C = $100+ 0.90 (Y-T) G = $600 T = $600 I = $100 X = $50 The economy is in equilibrium at a level of real GDP or income of $ Now suppose that the government decided to increase taxes by $300. What is the new equilibrium level of GDP or income? $arrow_forward
- 14arrow_forwardAssume that in the economy of Utrea, the MPC is 0.8 and the multiplier is 3 and that both government spending and autonomous taxes are increased by $40. In what direction and by how much will equilibrium GDP change?arrow_forwardThe full employment level of GDP is 470 the current level of GDP output is 430. Income is 430 and consumption is 420 income increases to 450 and consumption increases to 435. What will the MPC be What will the MPS be What will the multiplier be How much and in what direction will spending need to change to regain the full employment level of GDP How much and in what direction will taxes need to change to regain the full employment level of GDP You must show all work you must take all steps and it must be done in a neat well organized easy to follow manner.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
