need help. please explain

1. Suppose an economy is currently under in a Recessionary Gap. The Potential Output of the economy is $850 billion. Please use the following information to answer the questions below: Assumptions. a) Government revenues come from total income taxes. b) Consumers only react to changes in taxes, and there is no autonomous consumption c) Investment only reacts to changes in the interest rate d) The golden assumption of Neoclassical Economics: Investment = Savings Total Income- 600 Consumption- 234 Investment- 156 Exports- 320 Imports- 200 Gov Spending- 120 Revenues- 210 Marginal propensity to consume- 0.6 Tax rate- 0.35 Multiplier- 4.047619 Interest rate- 0.025 1. Define Potential Output, a recessionary GDP gap, and an inflationary GDP gap. 2. Calculate the recessionary gap of the economy. 3. What are the current levels of Consumption and government Revenues (remember all values are in billions of dollars and correspond to the aggregate of the economy)? 4. Now suppose the government wants to implement an expansionary Fiscal Policy that leads the economy to the level of full employment. What is the current government deficit? What is the correct policy under these circumstances? 5 . Calculate the value of the government's policy and show graphically the effects. 6. The Central Bank offers to implement an expansionary Monetary Policy before the government sacrifices its good standing. It then decides to bring the down the interest rate to 1.75%. Explain what happens to the economy under this Monetary Policy. Show each of your steps. What is the new recessionary gap? Explain your assumptions. 7. What would you recommend the president of this economy to do, should she go for the fiscal policy or the monetary policy? Explain and justify your