Suppose that real GDP is currently $19.9 trillion, potential GDP is $23.0 trillion, the government purchases...

 

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Suppose that real GDP is currently $19.9 trillion, potential GDP is $23.0 trillion, the government purchases multiplier is 1.8, and the tax multiplier is -2.0. Holding other factors (such as prices and interest rates) constant, how will government purchases (G) need to change to bring the economy to equilibrium at potential GDP? Provide your answer in dollars measured in trillions rounded to two decimal places. Use a negative sign "-" for negative changes. Do not include any symbols, such as "$," "," "%," or "," in your answer. Suppose that real GDP is currently $19.9 trillion, potential GDP is $23.0 trillion, the government purchases multiplier is 1.8, and the tax multiplier is -2.0. Holding other factors (such as prices and interest rates) constant, how will government purchases (G) need to change to bring the economy to equilibrium at potential GDP? Provide your answer in dollars measured in trillions rounded to two decimal places. Use a negative sign "-" for negative changes. Do not include any symbols, such as "$," "," "%," or "," in your answer.

Answer rating: 100% (QA)

Solution To calculate the required change in government purchases G we can use the following formula ... View the full answer