Look at the following graph and answer following questions:

A) How much is the output gap? [Difference between actual output (Short run equilibrium) and the potential output (long run equilibrium)].

B) For closing this output gap we need increase in Government spending or decrease in government spending?

C) Given a marginal propensity to consume of 0.80, how much of increase/decrease in Government spending is needed to move the economy to the long run equilibrium (potential output)?

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