Question

If the MPC is 0.80, all taxes are lump-sum taxes, and the equilibrium GDP is $25 billion below the full-employment GDP, then the size of the recessionary expenditure gap is Multiple Choice $2 billion. $5 billion. $4 billion. $6 billion.

Answer 1

Answer:

$5 billion

Explanation:

Calculation for size of the recessionary expenditure gap

Using this formula

Recessionary expenditure gap =MPC*equilibrium GDP

Let plug in the formula

Recessionary expenditure gap=0.20*25 billion

Recessionary expenditure gap=5 billion

Therefore the size of the recessionary expenditure gap is 5 billion