Calculate GDP gap if in an economy the unemployment rate is 9.4%, MPC = .75 and the Full employment GDP = $20,000 using okun's law (for every one percent of cyclical unemployment the GDP loss is 2 times). Show this GDP gap with the help of a graph. You can use either the expenditure model or AD/AS model to show the graph. Label the graph clearly.
Calculate the regular expenditure multiplier and the net tax multiplier.
How much money should the government spend to eliminate this gap?
How much money should the government give in tax cut to eliminate this gap?