Question
Fill in the blank A country is in the midst of a recession with real GDP estimated to be $9 billion below potential GDP. The
Fill in the blank
A country is in the midst of a recession with real GDP estimated to be $9 billion below potential GDP. The government's policy analysts believe the current value of the marginal propensity to consume (MPC) is 0.90
a. If the government wants real GDP to equal potential GDP, it should increase government spending by $_______ billion. Alternatively, it could reduce taxes by $_________ billion
b. Suppose that during recession, people have become less confident and decide they will only spend 50% of any additional income. In this case, if the government increases spending by the amount calculated in part a, real GDP will end up less than potential GDP by $_______ billion
c. With the same decrease in consume spending described in part b, if the government decreases taxes by the amount calculated in part a, then real GDP will end up greater than potential GDP by $________ billion
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