A smaller multiplier means that the change in government purchases of goods and services or taxes necessary to close an inflationary or recessionary gap is larger. Explain this apparent inconsistency?
A smaller multiplier means that the change in government purchases of goods and services or taxes necessary to close an inflationary or recessionary gap is larger. Explain this apparent inconsistency?
Related textbook solutions
Related questions
| GDP | C | Ig | G | X | M |
| 300 | 250 | 40 | 20 | 30 | 10 |
| 350 | 290 | 40 | 20 | 30 | 10 |
| 400 | 330 | 40 | 20 | 30 | 10 |
| 450 | 370 | 40 | 20 | 30 | 10 |
| 500 | 410 | 40 | 20 | 30 | 10 |
| 550 | 450 | 40 | 20 | 30 | 10 |
| 600 | 490 | 40 | 20 | 30 | 10 |
| 650 | 530 | 40 | 20 | 30 | 10 |
a). Calculate the MPC, MPS, and the multiplier
b). If full employment GDP is 600:
1). Is there an inflationary gap or a recessionary gap?
2).How much would government spending need to change to bring about the necessary change to return the economy to full employment equilibrium?
3).Alternatively, to a change in G, how much would taxes have to change to bring about the necessary change in to return the economy to full employment equilibrium?
c).If full employment GDP is 350:
1).Is there an inflationary gap or recessionary gap?
2).How much would spending need to change to bring about the necessary change to return the economy to full employment equilibrium?
