KEY QUESTION Refer to the table below in answering the questions that follow:

a. If full employment in this economy is 130 million, will there be an inflationary expenditure gap or a recessionary expenditure gap? What will be the consequence of this gap? By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the inflationary expenditure gap or the recessionary expenditure gap? Explain. What is the multiplier in this example?

b. Will there be an inflationary expenditure gap or a recessionary expenditure gap if the full-employment level of output is $500 billion? Explain the consequences. By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the gap? What is the multiplier in this example?

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?

(1) (2) (3)
Possible Levels Real Domestic Aggregate Expenditures of Employment, Output, (Ca  Ig  Xn  G), Millions Billions Billions 90 $500 $520 100 550 560 110 600 600 120 650 640 130 700 680