Answer:
The correct answer is $250 billion.
Explanation:
An economy is operating at an output level of $4,000 billion.
The potential output level is $5,000 billion.
The marginal propensity to consume is 0.75.
The recessionary gap is
= $5,000 billion - $4,000 billion
= $1,000 billion
ΔY = [tex]\frac{1}{1-MPC}\times \Delta G[/tex]
$1,000 = [tex]\frac{1}{1-0.75}\times \Delta G[/tex]
$1,000 = [tex]\frac{1}{0.25}\times \Delta G[/tex]
$1,000 = [tex]4 \times \Delta G[/tex]
ΔG = [tex]\frac{1,000}{4}[/tex]
The change in income required to correct this recessionary gap is $250 billion.
