4. Problems and Applications Q8

An economy is operating with output $200 billion above its natural level, and fiscal policymakers want to close this expansionary gap. The central bank agrees to adjust the money supply to hold the interest rate constant, so there is no crowding out. The marginal propensity to consume is 3/4, and the price level is completely fixed in the short run.

To close the expansionary gap, the government would need to (increase or decrease) spending by

____________billion.