Question: Assume the level of investment is $8 billion and independent of the level of total output.

260

a)    According to the AE model, the equilibrium level of real GDP is ____________

b)   Economy's marginal propensity to consume (MPC) is ________________

c)    Economy's multiplier is __________________

d)   Assume this economy's potential GDP is $270 billions.

(i)            Will there be a recessionary or inflationary expenditure gap? 

(ii)           Size of the GDP gap is ________________________

(iii)         Size of the expenditure gap is ________________________

(iv)         Savings at the potential GDP is equal to ________________