Suppose That Real GDP Is $1,300, Potential GDP Is $1,800

question 368

Essay

Suppose that real GDP is $1,300, potential GDP is $1,800, and the marginal propensity to consume is 0.6. If the government is going to close the gap by changing government purchases of goods and services and imposes no taxes, what specific fiscal policy action should policy makers take?

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Definitions:

Recognition

In accounting, recognition refers to the formal recording of an item in the financial statements, acknowledging its existence and the fact that it meets the criteria for financial reporting.

Revenue

Income that a business receives from its normal business activities, usually from the sale of goods and services to customers.

Deferral

A deferral occurs when cash related to a future revenue or expense has been initially recorded as a liability or an asset.

Unearned Revenue

Money received by a business for goods or services that have yet to be delivered or performed.