If There Is a Recessionary Gap of $100 Billion and the MPC

question 47

Essay

If there is a recessionary gap of $100 billion and the MPC is 0.8, by how much must taxes be reduced to eliminate the recessionary gap? Assume that prices are stuck and that investment, net exports, government expenditures, and taxes do not change with changes in real GDP.

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Definitions:

Cardiac Cycle

The sequence of events that occur in a complete heartbeat, including diastole and systole phases.

Isovolumetric Relaxation

A phase in the cardiac cycle where the heart muscle relaxes but the volume of the ventricles does not change because all heart valves are closed.

SA Node

The sinoatrial node, a group of cells in the right atrium of the heart that sets the pace of the heartbeat.

P-R Interval

A measurement in electrocardiography representing the time between the onset of the P wave and the start of the QRS complex, related to atrial depolarization and AV nodal delay.