The Canadian economy is assumed to be at full employment Equilibrium up till March of 2020 when the global pandemic (covid-19) and associated economic instability (recession and unemployment) kicked in. As a result of the pandemic, a GDP gap of $80 billion is also noted to have appeared in the economy.

Using the AD/AS model and assuming that the economy's marginal propensity to consume (MPC) is 0.85; by how much should government increase the government spending to restore full employment equilibrium at each price level?

Please be sure to also describe the type of GDP gap that occurred and explain the different fiscal and monetary policies put in place by the Federal Government and Bank of Canada to deal with the economic problems. [Explain verbally and graphically with the AD-AS model.]