Assume that full-employment real GDP is Y=$1,200 billion, the current equilibrium real GDP is Y=$1,600, and the MPC= 0.8. To bring the economy to full employment real GDP,
a. a recessionary gap must be bridged by increasing aggregate expenditures by $80 billion.
b. an inflationary gap must be bridged by cutting aggregate expenditures by $80 billion.
c. nothing is needed to bring the economy into full-employment equilibrium.
d. a recessionary gap must be bridged by increasing aggregate expenditures by $400 billion.
e. an inflationary gap must be bridged by cutting aggregate expenditure by $400 billion.
Assume that full-employment real GDP is Y=$1,200 billion, the current equilibrium real GDP is Y=$1,600, and the MPC= 0.8. To bring the economy to full employment real GDP,
a. a recessionary gap must be bridged by increasing aggregate expenditures by $80 billion.
b. an inflationary gap must be bridged by cutting aggregate expenditures by $80 billion.
c. nothing is needed to bring the economy into full-employment equilibrium.
d. a recessionary gap must be bridged by increasing aggregate expenditures by $400 billion.
e. an inflationary gap must be bridged by cutting aggregate expenditure by $400 billion.
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Complete the following table:
Instructions: Enter your responses as whole numbers.
| Real Output Demanded (in $ billions) by | ||||||||||
| Price Level |
Consumers | + | Investors | + | Government | + | Net Exports | = | Aggregate Demand | Aggregate Supply |
| 120 | 80 | 15 | 20 | 10 | ? | 320 | ||||
| 110 | 92 | 16 | 20 | 12 | ? | 260 | ||||
| 100 | 104 | 17 | 20 | 14 | 215 | |||||
| 90 | 116 | 18 | 20 | 16 | 200 | |||||
| 80 | 128 | 19 | 20 | 18 | 185 | |||||
| 70 | 140 | 20 | 20 | 20 | 175 | |||||
| 60 | 154 | 21 | 20 | 22 | 170 | |||||
(a) What is the level of equilibrium real GDP?
$ billion
(b) What is the equilibrium price level?
$
(c) If full employment occurs at a real GDP of $200 billion, what kind of GDP gap exists?
| An inflationary GDP gap | |
| A recessionary GDP gap |
(d) How large is that gap?
(e) Which macroeconomic problem exists here?
| Unemployment | |
| Inflation |
Complete the following table:
Instructions: Enter your responses as whole numbers.
| Real Output Demanded (in $ billions) by | ||||||||||
| Price Level |
Consumers | + | Investors | + | Government | + | Net Exports | = | Aggregate Demand | Aggregate Supply |
| 120 | 80 | 15 | 20 | 10 | 320 | |||||
| 110 | 92 | 16 | 20 | 12 | 260 | |||||
| 100 | 104 | 17 | 20 | 14 | 215 | |||||
| 90 | 116 | 18 | 20 | 16 | 200 | |||||
| 80 | 128 | 19 | 20 | 18 | 185 | |||||
| 70 | 140 | 20 | 20 | 20 | 175 | |||||
| 60 | 154 | 21 | 20 | 22 | 170 | |||||
(a) What is the level of equilibrium real GDP?
$ billion
(b) What is the equilibrium price level?
$
(c) If full employment occurs at a real GDP of $180 billion, what kind of GDP gap exists?
| Inflationary gap | |
| Recessionary gap |
Instructions: Enter your value as an absolute number (no negative sign is needed).
(d) How large is that gap?
$ billion
(e) Which macroeconomic problem exists here?
| Inflation | |
| Unemployment |
