If the economy is initially suffering from a recessionary gap equal to 50 units and the marginal propensity to consume is 0.9,then the income-expenditure multiplier is equal to _________,so if net exports rise by _________ units,the economy will return to potential output.

Question

Quizplus · Accepted Answer

The income-expenditure multiplier is calculated as 1/(1-MPC), which equals 10 when MPC is 0.9. To close a recessionary gap of 50 units, net exports need to rise by 5 units (50/10).

If the Economy Is Initially Suffering from a Recessionary Gap