Exercise 4 This exercise shows how the multiplier works to eliminate a GDP gap. Refer to Figure 11.2 to answer questions 1-4. Assume the MPC equals 0.80 and the current level of aggregate demand is equal to AD,. Figure 11.2 Current Price Price Level P Level AD3 ADI! AD2 6.5 6.6 6.7 6.8 6.9 7.0 Q1 Q2 Q3 Qs QF Real GDP ($ trillions per year) 1. What is the size of the GDP gap? 2. What is the value of the multiplier? 3. An increase in government spending of $100 billion would cause consumption to increase by $ billion in the second spending cycle. 4. An increase in government spending of $100 billion would cause a cumulative increase in aggregate demand equal to $ billion and would result in an equilibrium real GDP equal to $ trillion