Consider the following multiplier model:
AE = 5,000 + 0.9Y,and potential output equals 45,000.
(1)Calculate equilibrium output.
(2)State what fiscal policy you would recommend to eliminate the inflationary or recessionary gap.
(3)Calculate the change in government spending needed to eliminate the gap.

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The Answer of Consider the following multiplier model:
AE = 5,000 + 0.9Y,and potential output equals 45,000.
(1)Calculate equilibrium output.
(2)State what fiscal policy you would recommend to eliminate the inflationary or recessionary gap.
(3)Calculate the change in government spending needed to eliminate the gap.

Consider the Following Multiplier Model