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.
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?