1. Calculate the recessionary gap of the economy
   

Part I Answer the following question. 1. (50 p15) Suppose an economy is currently under in a Recessionary Gap. The Potential Output of the economy is $850 billion. Please use the following information to answer the questions below: Assumptions: a] Government revenues come from total income taxes. b) Consumers only react to changes in taxes, and there is no autonomous consumption c] Investment only reacts to changes in the interest rate d) The golden assumption of Neoclassical Economics: Investment = Savings Total Income Consumption Investment Exports Imports Gov Spending Revenues Marginal propensity to consume 0.6 Tax rate 0.35 multiplier 4.047619 Interest rate 0.025