Multiplier effect to close the recessionary gap.
1. Income is $8 billion and the mpe is 0.8. Potential output is $10 billion.
a. What is the recessionary gap? 2 billion
b. How much of an increase in government spending would be required to close the gap? 400 million
2. Consider the graph on the below.
![2446_recessionary gap.jpg](https://secure.tutorsglobe.com/CMSImages/2446_recessionary%20gap.jpg)
![1672_recessionary gap2.jpg](https://secure.tutorsglobe.com/CMSImages/1672_recessionary%20gap2.jpg)
1. Illustrate what are autonomous expenditures?
2.What is the mpe?
3.What is the slope of the AE line?
4.When income is $6,000, what are expenditures?
5.When income is $6,000 what is the value of production?
6.If income is $6,000, is the economy in equilibrium? If not, what will happen to production during the first round of adjustments?
7.What is equilibrium output?