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5. In each of the following cases, either a recessionary or

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5. In each of the following cases, either a recessionary or inflationary
gap exists. Assume that the aggregate supply curve is
horizontal so that the change in real GDP arising from a shift
of the aggregate demand curve equals the size of the shift of
the curve. Calculate both the change in government purchases
of goods and services and the change in government transfers
necessary to close the gap.
a. Real GDP equals $100 billion, potential output equals $160
billion, and the marginal propensity to consume is 0.75.
b. Real GDP equals $250 billion, potential output equals
$200 billion, and the marginal propensity to consume is
0.5.
c. Real GDP equals $180 billion, potential output equals
$100 billion, and the marginal propensity to consume is
0.8.
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