Economics help...what is the gdp?
or instruction would help
Calculate the GDP gap if in an economy the unemployment rate is 9.5%, marginal propensity to consume = .9, and the Full employment GDP = $10,800.
Calculate the regular expenditure multiplier and the net tax multiplier.
How much money should the government spend in government expenditures to eliminate this gap?
If the government chooses to use tax reduction to eliminate this gap to maintain full employment, how much the taxes should be reduced by to eliminate this gap?
Answer:
The first question what is the GDP?
Well you know the Full employment GDP and you know the gap percentage.
The percentage is just the difference of the actual and potential GDP over the potential.
GDP gap % = (actual GDP - potential GDP)/potential GDP
So, -.095 = (10800-Potential GDP)/Potential GDP
Actual GDP = $9863.01
Calculate the expenditure and tax multipliers
All the multipliers are
1/(1-MPC) and MPC/(1-MPC)
respectively.
So expenditure multiplier would be 10 while tax would be 9.
How much money should the government spend to eliminate the gap?
You would use the expenditure multiplier.
The gap is the difference between the potential and actual GDP or $936.99.
So solve for how much the government needs to spend.
ΔY=Multiplier*ΔG
$936.99 = 10 *ΔG
ΔG=$93.70
If they chose to use the tax reduction to lower the gap then use the tax multiplier.
ΔY=Tax Multiplier*ΔG
936.99=9*ΔT
ΔT=$104.11
Gross Domestic Product is the total value of all goods and services produced in a region. The rest of the question makes no sense; it assumes some fallacious principles, such as government expenditures will have a calculable effect.
Gross Domestic Product is gdp but my study of economics is too long ago now to help om the calculations.
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