Suppose the economy is currently producing 2.75% above potential GDP. The government decreases spending by $3.2 trillion, and this causes GDP to fall by $4.9 trillion. The economy then arrives at potential GDP. Using this information, answer the following questions.
(a) What is the approximate 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 2.75% above potential GDP. The government decreases spending by $3.2 trillion, and this causes GDP to fall by $4.9 trillion. The economy then arrives at potential GDP. Using this information, answer the following questions.
(a) What is the approximate multiplier in the economy?
(b) What effect will be seen on the IS-MP framework?

Suppose the Economy Is Currently Producing 2