Macroeconomics + Economy 2009 Update 18th Edition by Campbell McConnell, Sean Masaki Flynn,Stanley Brue

Exercise 7

Refer to the table below in answering the questions which follow:

a. If full employment in this economy is 130 million, will there be an inflationary expenditure gap or a recessionary expenditure gap What will be the consequence of this gap By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the inflationary expenditure gap or recessionary expenditure gap Explain. What is the multiplier in this example
b. Will there be an inflationary expenditure gap or recessionary expenditure gap if the full-employment level of output is $500 billion Explain the consequences. By how much would aggregate expenditures in column 3 have to change at each level of GDP to eliminate the gap Explain. What is the multiplier in this example
c. Assuming that investment, net exports, and government expenditures do not change with changes in real GDP, what are the sizes of the MPC, the MPS, and the multiplier