Refer to the accompanying table in answering the questions that follow:
(1) Possible Levels of
Employment, Millions
70
90
110
130
150
(2) Real Domestic
Output, Millions
$ 400
450
500
550
600
(3) Aggregate Expenditures ($C_a
+ $I_g + $X_n + G), Millions
$ 420
460
500
540
580
Instructions: In parts a-c, enter your answers for the multiplier as a whole number. In part c, round your answers for the MPC and MPS
to 1 decimal place.
a. If full employment in this economy is 150 million, will there be an inflationary expenditure gap or a recessionary expenditure gap?
(Click to select)
What will be the consequence of this gap?
(Click to select)
By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the gap?
Aggregate expenditures would have to (Click to select) by $
million.
What is the multiplier in this example?
b. Will there be an inflationary expenditure gap or a recessionary expenditure gap if the full-employment level of output is $400
million?
(Click to select)
By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the gap?