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Consider the Following Multiplier Model

question 8

Essay

Consider the following multiplier model:
AE = 8,000 + 0.75Y,and potential output equals 35,000.
(1)Calculate equilibrium output.
(2)State what fiscal policy you would recommend to eliminate the inflationary or recessionary gap.
(3)Calculate the change in government spending required to eliminate the gap.


Definitions:

Wooden Leg

A prosthetic limb made from wood, traditionally used to replace a missing leg.

Negative Situation

A circumstance or set of conditions that adversely affects individuals, groups, or outcomes.

Intensity

The degree of strength, force, or energy in an action, feeling, or phenomenon.

Wooden Leg

A prosthetic limb made of wood, used to replace a missing leg.

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