Assume that the economy is$500 billion above its full-employment GDP and the marginal propensity to consume is 0.75 Give a fiscal policy recommendation to close the gap in GDP. How much is needed? Note: This will depend on what fiscal policy tool you recommend in a) Show your calculations to receive full points. (you can assume AD shortfall = GDP gap) How would this policy change affect the economy's budget position?

Answer rating: 100% (QA)

To close the GDP gap of 500 billion we can use fiscal policy specifically government spending to sti... View the full answer