The figure given below depicts macroeconomic equilibrium in a closed economy. Assume that the spending multiplier in this economy is 1.5.
Figure 10.5

-Refer to Figure 10.5. If the target or potential level of real GDP is $1,200, then at an equilibrium real GDP level of $900:

Question

The figure given below depicts macroeconomic equilibrium in a closed economy. Assume that the spending multiplier in this economy is 1.5.
Figure 10.5
 
-Refer to Figure 10.5. If the target or potential level of real GDP is $1,200, then at an equilibrium real GDP level of $900:

Quizplus · Accepted Answer

The recessionary gap is the difference between the potential GDP ($1,200) and the actual GDP ($900), which is $300. To close this gap, an increase in autonomous investment spending would increase aggregate expenditures, moving the economy towards the potential GDP.

The Figure Given Below Depicts Macroeconomic Equilibrium in a Closed