Question

Suppose that real GDP is currently ​$13.22 trillion and potential real GDP is​ $14.0 trillion, or a gap of ​$800800 billion. The government purchases multiplier LOADING... is 10.010.0​, and the tax multiplier is 9.09.0. Holding other factors​ constant, by how much will government purchases need to be increased to bring the economy to equilibrium at potential​ GDP

Answer 1

Change in government purchase needed = $40

Step-by-step explanation:

Multiplier denotes the extent to which, change in an autonomous variable leads to multiple change in economy income.

Multiplier 'k' = Change in Income 'ΔY' / Change in autonomous variable 'ΔG', as autonomous variable = government purchase here.

ΔY needed = 200 billion , k = 5 , ΔG = ?

k = ΔY / ΔG

5 = 200 / ΔG

ΔG = 200 / 5

ΔG = 40

Change in government purchase needed = $40