Assume the Level of Investment Is $12 Billion and Independent

question 40

Essay

Assume the level of investment is $12 billion and independent of the level of total output.Complete the following table and answer the following questions about this private closed economy. (a) What are the sizes of the MPC, MPS, and multiplier in this economy?
(b) If full employment in this economy is 110 million, will there be a recessionary or inflationary gap? Explain the consequences of this gap.(c) Using the multiplier concept, determine what change in investment is needed to eliminate the output gap.(d) If full employment in this economy is 80 million, will there be an inflationary or recessionary gap? Explain the consequences of this gap.(e) Using the multiplier concept, determine what change in investment is needed to eliminate the output gap from part (d).

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