Question: solve it as soon as possible Question No: 02 [Marks: 10] An economy is operating with output that is $40 billion below its natural level,

solve it as soon as possible

solve it as soon as possible Question No: 02 [Marks: 10] An

Question No: 02 [Marks: 10] An economy is operating with output that is $40 billion below its natural level, and fiscal policymakers want to close this recessionary gap. The central bank agrees to adjust the money supply to hold the interest rate constant, so there is no crowding out. The marginal propensity to consume is 45, and the price level is completely xed in the short run. In what direction and by how much would government spending need to change to close the recessionary gap? Explain your thinking

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