The Macro Economy Today, 16th ed
The country of Keynesland is producing at their equilibrium GDP of $100 b of output. In the past fiscal year, the increase in overall Disposable Income was $100 m and overall consumption increased by $60m.
Recently, there has been a drop in consumer confidence which has produced a recessionary gap of $40 billion.
The council of economic advisors knows that they must act quickly.
You are the chairman of the council. You must calculate the following before you make your recommendations:
What is the MPC? _______________
What is the MPS? _______________
What is the multiplier? ____________
If the government wanted to increase government spending to close the recessionary gap, how much G would be required? ______________
Based on the information in this chapter, what is the risk of too much injection into the economy to offset a recessionary gap?