In Macroland,the components of planned aggregate expenditure are given by:
C = 100 + 0.9(Y - T)- 500r
I = 150 - 1,000r
G = 200
NX = 50
If potential output equals 3,500,net taxes equal 100,and the central bank sets the interest rate to equal 0.05 (5%),then at the short-run equilibrium,there is a(n)_________ gap of ________.
A) expansionary;100
B) expansionary;150
C) recessionary;50
D) recessionary;100
E) recessionary;150

Question

Quizplus · Accepted Answer

The short-run equilibrium output is calculated by setting planned aggregate expenditure equal to actual output (Y). Solving for Y with the given equations and interest rate, we find that Y is less than potential output (3,500), indicating a recessionary gap. The gap is 150.

In Macroland,the Components of Planned Aggregate Expenditure Are Given By