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Svetach [21]
3 years ago
9

If the MPC = .80, all taxes are lump-sum taxes, and the equilibrium GDP is $40 billion below the full-employment GDP, the size o

f the recessionary gap is _________________.
a) $40 billion
b) $20 billion
c) $8 billion
d) cannot be determined from the information given
Business
1 answer:
Sav [38]3 years ago
5 0

Answer:

recessionary gap = 8 billion

so correct option is c) $8 billion

Explanation:

given data

MPC = 0.80

GDP = $40 billion

to find out

the size of the recessionary gap

solution

we get here first Multiplier  that is

Multiplier  = \frac{1}{1-MPC}     ..................1

Multiplier  = \frac{1}{1-0.80}

Multiplier  = 5

so recessionary gap will be

recessionary gap = \frac{GDP}{5}     ................2

recessionary gap = \frac{40}{5}

recessionary gap = 8 billion

so correct option is c) $8 billion

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