TEXTBOOK The Macro Economy Today, 16th ed  Bradley SchillerMcGraw-Hill2022 CHAPTER 10 Question 1: The country of Keynesland is producing at their equilibrium GDP of $100 b of output

TEXTBOOK

The Macro Economy Today, 16th ed

 Bradley SchillerMcGraw-Hill2022

CHAPTER 10

Question 1:

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?  ______________

Question 2:

Based on the information in this chapter, what is the risk of too much injection into the economy to offset a recessionary gap?