Assignments 4

Assignments 4 - GDP gap=14286 12600= 1686 Recessionary gap=...

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The regular expenditure multiplier =1/(1-MPC) =1/(1-.75)=4 The tax multiplier =MPC/(1-MPC) = .75/(1-.75)=3 Suppose the natural rate of unemployment (NRU) =5.5% Cyclical Unemployment=11.4%-5.5%=5.9% GDP gap= 2 *cyclical unemployment= 2*5.9%= 11.8% GDP (F) = GDP/(1-11.8%)=12600/88.2%=14286
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Unformatted text preview: GDP gap=14286- 12600= 1686 Recessionary gap= GDP gap/ K= 1686/4= 421.5 the government should spend $ 421.5 to eliminate this gap. T= Recessionary gap/MPC=421.5/.75=562 the government should give $562 in tax cut to eliminate this gap....
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