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5. Country X's long run full employment level of Real GDP is estimated to be $19,100,000. However, the current actual Real GDP in country X

5. Country X's long run full employment level of Real GDP is estimated to be $19,100,000. However, the current actual Real GDP in country X stands at $16,300,000.

Data also shows that in country X an average $1,000.00 increase in income results in $910.00 change in consumption. Answer the following questions. (12 points)

I. Is Country X in a recessionary or an inflationary Real GDP gap? Briefly explain your answer.

II. What is the dollar value of the GDP gap? $________________________________

III. What is country X's Marginal Propensity to Consume (MPC)? __________________________

IV. MPC has been updated and is now estimated to be 88% (0.88), calculate country X's income multiplier. _____________________________________

V. Explain what the income multiplier value you obtained in question IV means.

VI.You are informed that due to inaction by government the recessionary Real GDP gap now stands at $3,100,000, and the income multiplier is now 8.98.

By how much should country X's government increase the "Autonomous consumption" (i.e., spending) to close the $3,100,000 recessionary Real GDP gap to help the economy reach full employment?

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