An economy is in equilibrium at a real GDP of 750, but current estimates put potential output at Yp = 800.

a) Answer the following fill-in the blank question.

When Y = 750 and Yp = 800 there is a inflationary gap and the size of the gap is equal to _____

b) Answer the following fill-in the blank question.

Note: Keep as much precision as possible during your calculations. Your final answer should be accurate to at least three decimal places.

Research suggests that the MPC is 0.8, the MPM is 0.15, and the net tax rate is 0.2. Therefore, the slope of AE is ____and the multiplier is _____ which means that G must be increased by ____ to remove the gap and achieve equilibrium.

c) If the government preferred to change its net tax rate to eliminate the gap, and not change government expenditure, what new tax rate would be required to eliminate the gap?

Note: Keep as much precision as possible during your calculations. Your final answer should be accurate to at least three decimal places.

Tax rate required to eliminate the gap = ____