In the nation of Economia,the economy is overheating and there is danger of inflation.The chief economist estimates that current income is $50 billion,while the optimal level is $40 billion.The multiplier is 4.If government wants to close the inflationary gap,it should reduce government spending by:

Question

Quizplus · Accepted Answer

The inflationary gap is $10 billion ($50 billion - $40 billion). With a multiplier of 4, the government should reduce spending by $2.5 billion ($10 billion / 4) to close the gap.

In the Nation of Economia,the Economy Is Overheating and There