1.If you know that the vertical intercept of AE₀ is 362.5 and the vertical intercept of AE₁ is 387.5, Use the graph above to answer the following questions:

a.If AE₀ is the AE function for that economy, and if the potential level of GDP is 500. is the economy suffering a recessionary or an inflationary gap?

The economy is suffering from recessionary gap since the actual GDP is less than potential GDP

b.What is the MPC, MPS, and the spending multiplier in that economy?

c.Given your answer for a by how much do we need to change the AE to close the gap?