contestada

If the MPC = .80, all taxes are lump-sum taxes, and the equilibrium GDP is $40 billion below the full-employment GDP, the size of the recessionary gap is _________________.

a) $40 billion
b) $20 billion
c) $8 billion
d) cannot be determined from the information given

Respuesta :

Answer:

recessionary gap = 8 billion

so correct option is c) $8 billion

Explanation:

given data

MPC = 0.80

GDP = $40 billion

to find out

the size of the recessionary gap

solution

we get here first Multiplier  that is

Multiplier  = [tex]\frac{1}{1-MPC}[/tex]     ..................1

Multiplier  = [tex]\frac{1}{1-0.80}[/tex]

Multiplier  = 5

so recessionary gap will be

recessionary gap = [tex]\frac{GDP}{5}[/tex]     ................2

recessionary gap = [tex]\frac{40}{5}[/tex]

recessionary gap = 8 billion

so correct option is c) $8 billion

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