Consider a closed economy where MPC = 0.9, and AE = Ye 1 (equilibrium production level). However, potential output is larger, at 9,000 G$
Ye 1 = 8,000 G$ Yp = 9,000 G$
Calculate the Output Gap, and the necessary government stimulus, so that Ye 2 = Yp.

Question

Consider a closed economy where MPC = 0.9, and AE = Ye 1  (equilibrium production level). However, potential output is larger, at 9,000 G$ 
 Ye 1  = 8,000 G$ Yp = 9,000 G$ 
 Calculate the Output Gap, and the necessary government stimulus, so that  Ye 2  = Yp.

Accepted Answer

Output Gap = -1,000 G$  and  ΔG = 100 G$

Answer

Output Gap = -2,000 G$ and ΔG = 100 G$

Answer

Output Gap = -2,000 G$ and ΔG = 50 G$

Answer

Output Gap = -1,000 G$ and ΔG = 10 G$

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Consider a closed economy where MPC = 0.9, and AE = Ye 1 (equilibrium productio...

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