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The questions are listed below. Refer to the accompanying table in answering the questions that follow: (1) Possible Levels of (2) Real Domestic (3) Aggregate

The questions are listed below.

image text in transcribed Refer to the accompanying table in answering the questions that follow: (1) Possible Levels of (2) Real Domestic (3) Aggregate Expenditures (Ca Employment, Millions Output, Billions Ig + Xn + G), Billions 56 $400 $420 80 450 460 110 500 500 140 550 540 170 600 580 Instructions: In parts a-c, enter your answers for the multiplier as a whole number. In part c, round your answers for the MPC and MPS to 1 decimal place a. If full employment in this economy is 170 million, will there be an inflationary expenditure gap or a recessionary expenditure gap? Recessionary expenditure gap v What will be the consequence of this gap? A shortfall in aggregate expenditures of $20 billion. By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the gap? Aggregate expenditures would have to increase by $ 20] billion . What is the multiplier in this example? 1.25 b. Will there be an inflationary expenditure gap or a recessionary expenditure gap if the full-employment level of output is $400 billion? Inflationary expenditure gap By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the gap? Aggregate expenditures would have to decrease by $ 20 billion. What is the multiplier in this example? 1.25 c. Assuming that investment, net exports, and government expenditures do not change with changes in real GDP, what are the sizes of the MPC, the MPS, and the multiplier? MPC = 0.2 MPS= 0.8 Multiplier = 1.25

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