Hypothetical assumptions for the economy:

Leakages are 40% of new income.

The currentbank rate is 1.50%.

The currentRealGDPin 2012dollars is $2,109,000,000,000OR$2,109 Billion

It is estimated thatthe potential RGDP would be $2,159 Billion.

1.Use the information above to solve the following problem.(3 marks)

1. Identify whether there is a recessionary gap or an inflationary gap and the amount of the output gap.

1. Given that leakages are 40%, what is the amount of the multiplier on any new spending?

1. Using the multiplier, what change in business investment spending wouldchange GDP enough toeliminate the output gap?

1. What new rate of interest would bring about this change in business investment?