Multiplier Effect

a. During a recessionary gap, is the goal to increase or decrease the equilibrium GDP? Will the change in spending be greater than, less than or equal to the change in the equilibrium GDP?

b. In a given economy with an MPC of 0.8, the equilibrium GDP equals $630,000. If G increases by $70000, solve for the new equilibrium GDP that will result.

c. In a given economy, with an equilibrium GDP of $280,000 both government purchases and taxes increase by $10,000. Solve for the new equilibrium GDP that will result from these two changes.