Question

Suppose that real GDP is currently $ 13.8 trillion and potential real GDP is $ 14.0 trillion, or a gap of $ 200 billion. The government purchases, multiplier is 5.0, and the tax multiplier is 4.0

Holding other factors constant, by how much will government purchases need to be increased to bring the economy to equilibrium at potential GDP?

1.Government spending will need to be increased by $ _________ billion (enter your response rounded to the nearest whole number).

2. Holding other factors constant, by how much will taxes have to be cut to bring the economy to equilibrium at potential GDP?

Taxes will need to be cut by $ _________ billion (enter your response rounded to the nearest whole number).

Answer 1

The answer and procedures of the exercise are attached in the following archives.

Step-by-step explanation:

You will find the procedures, formulas or necessary explanations in the archive attached below. If you have any question ask and I will aclare your doubts kindly.