In a certain economy,the components of planned aggregate expenditure are given by:
C = 60 + 0.6 (Y - T)- 1,000r
I = 200 - 1,000r
G = 200
NX = 50
If potential output equals 925,net taxes equal 100 and the central bank sets the interest rate equal to 0.05 (5%),then at the short-run equilibrium,there is a(n)________ gap of ________.
A) expansionary;50
B) expansionary;100
C) recessionary;150
D) recessionary;100
E) recessionary;50

Question

Quizplus · Accepted Answer

The short-run equilibrium output is calculated by setting planned aggregate expenditure equal to actual output. Substituting the given values, the equilibrium output is 875. Since potential output is 925, there is a recessionary gap of 50.

In a Certain Economy,the Components of Planned Aggregate Expenditure Are