Question 3 (2 marks): A closed economy with some information as follows: The autonomous consumption, investment and gove

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Question 3 2 Marks A Closed Economy With Some Information As Follows The Autonomous Consumption Investment And Gove 1 (111.46 KiB) Viewed 14 times

Question 3 (2 marks): A closed economy with some information as follows: The autonomous consumption, investment and government are assumed to be equal: 100, 150 and 120 respectively. The marginal propensity to consume is 0.75. The government collects fixed tax is 40 a. Suppose the potential output is 1160. Is the economy in inflationary gap or expansionary gap? Draw a diagram to show this situation (including the two levels of outputs) b. How the government can implement the fiscal policy by changing only the government spending to return the current output to potential output? (Assume that no crowding-out effect). Please specify both the direction and magnitude of this change.