Macroeconomics 20th Edition by Campbell McConnell,Stanley Brue,Sean Flynn

Exercise 18

(For students who were assigned Chapter 11) Use the aggregate expenditures model to show how government fiscal policy could eliminate either a recessionary expenditure gap or an inflationary expenditure gap (Figure 11.7). Explain how equal-size increases in G and T could eliminate a recessionary gap and how equal-size decreases in G and T could eliminate an inflationary gap