Suppose There Is a $200 Billion Recessionary Gap

question 168

Essay

Suppose there is a $200 billion recessionary gap.If there are no taxes or imports, to restore the economy back to potential GDP, how much should government expenditure be changed if the marginal propensity to consume is 0.75?
Does government expenditure need to be increased or decreased?

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Definitions:

High Risk

refers to situations or activities with a high potential for loss or danger, often in the context of investments or decisions.

Insurance

A financial product that provides protection against possible future losses in exchange for a premium.

Adverse Selection

A situation where asymmetrical information leads to a mismatch between buyers and sellers, with one party having more or better information than the other.

Reckless Drivers

Individuals who operate vehicles in a careless or dangerous manner, often violating traffic laws and putting themselves and others at risk.