If the economy is initially suffering from a recessionary gap equal to 100 units and the marginal propensity to consume is 0.75,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 is 1/(1-0.75) = 4. To close a recessionary gap of 100 units, net exports need to rise by 100/4 = 25 units.

If the Economy Is Initially Suffering from a Recessionary Gap