Suppose the economy is currently producing 4% below potential GDP. The government increases spending by $5 trillion, and this causes GDP to rise by $15 trillion. The economy then arrives at potential GDP. Using this information, answer the following questions.
(a) What is the multiplier in the economy?
(b) What effect will be seen on the IS-MP framework?

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The Answer of Suppose the economy is currently producing 4% below potential GDP. The government increases spending by $5 trillion, and this causes GDP to rise by $15 trillion. The economy then arrives at potential GDP. Using this information, answer the following questions.
(a) What is the multiplier in the economy?
(b) What effect will be seen on the IS-MP framework?

Suppose the Economy Is Currently Producing 4% Below Potential GDP