An economy is operating with output that is $40 billion below its natural level. And fiscal policy makers want to close this recessionary gap. The central bank agrees to adjust the money supply to hold the interest rate constant so there is no crowding out. the marginal propensity to consume 4/5 and the price level is completely fixed in the short run. In what direction and by how much would government spending need to change to close the recessionary gap? Explain.
An economy is operating with output that is $40 billion below its natural level. And fiscal policy makers want to close this recessionary gap. The central bank agrees to adjust the money supply to hold the interest rate constant so there is no crowding out. the marginal propensity to consume 4/5 and the price level is completely fixed in the short run. In what direction and by how much would government spending need to change to close the recessionary gap? Explain.
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter16: Expectations Theory And The Economy
Section: Chapter Questions
Problem 10QP
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An economy is operating with output that is $40 billion below its natural level. And fiscal policy makers want to close this recessionary gap. The central bank agrees to adjust the money supply to hold the interest rate constant so there is no crowding out. the marginal propensity to consume 4/5 and the price level is completely fixed in the short run. In what direction and by how much would government spending need to change to close the recessionary gap? Explain.
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