Answer to Question #105829 in Macroeconomics for Valeria

Question

the economy of new land is in short-run macroeconomic equilibrium the current real output is 400 billion in the full employment output is 500 billion the marginal propensity to consume is 0.8 is the economy experiencing a recessionary output Gap or an inflationary output explained

Answer 1

current output , Co=400billion

full employment output ,Eo= 500billion

MPc= 0.8

at equilibrium ;$\frac{Co}{Eo}=MPc$

400/500=0.8

Hence the economy is experiencing a recessionary output gap because the current output is less than the full employment output