View the step-by-step solution to:

1) If the MPS is 0.25 and the economy has a recessionary gap of $5 billion, what is the size of the GDP Gap?

1) If the MPS is 0.25 and the economy has a recessionary gap of $5 billion, what is the size of the GDP Gap?

2) Assume the economy is in long-run equilibrium. Aggregate Demand then shifts left and the economy contracts by $50 billion. The government wants to change its spending in order to avoid a recession. If the crowding-out effect is always half as strong as the multiplier effect, and if the MPC equals 0.9, by how much does government purchases have to change?

This question was asked on May 08, 2010.

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors and customizable flashcards—available anywhere, anytime.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access or to earn money with our Marketplace.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
  • -

    Flashcards

    Browse existing sets or create your own using our digital flashcard system. A simple yet effective studying tool to help you earn the grade that you want!

    Browse Flashcards