Question

Use the table below to answer the following questions Price level Real GDP supplied (short run)...

  1. Use the table below to answer the following questions

Price level

Real GDP supplied (short run)

Real GDP demanded

100

550

600

110

575

575

120

600

550

130

625

525

  1. Calculate short-run equilibrium and the price level
  2. If potential GDP equals 625, what is the gap called and what is the amount of the gap?
  3. If potential GDP equals 550, what is the gap called and what is the amount of the gap?

Use the table below to answer the following questions

Disposable Income (billions)

Consumption (billions)

Savings (billions)

100

-20

200

200

300

20

400

360

500

440

600

80

700

100

  1. Complete the table
    1. Graph the consumption schedule and determine the MPC and the MPS
    2. Determine the multiplier
    3. Assume that consumption increases by 3 billion, use the multiplier to determine the increase in real GDP

Homework Answers

Answer #1

A) in short run eqm

Real GDP supplied = real GDP demanded

= 575

So P*= 110

Y*= 575

B) potential GDP = 625

As current GDP is lower than potential level

So it is Recessionary Gap

Gap amount = 625-575

= 50

C) current GDP Y = 575, is more than potential level

So it is inflationary gap

Gap size = 575-550

= 25

D) table

Yd C S
100 120 -20
200 200 0
300 280 20
400 360 40
500 440 60
600 520 80
700 600 100

Yd = C+S

A)

MPC = ∆C/∆Y

= 80/100

= .8

MPS = .2

B) multilplier m, = 1/(1-MPC)

= 1/.2

= 5

C) ∆C = 3,

m =∆Y/∆C

∆Y = 3*5= 15 billion

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