The present level of a country’s exports is £12 billion; investment is £2 billion; government expenditure is £4 billion; total consumer spending (not
The present level of a country’s exports is £12 billion; investment is £2 billion; government expenditure is £4 billion; total consumer spending (not Cd) is £36 billion; imports are £12 billion and expenditure taxes are £2 billion. The economy is currently in equilibrium. It is estimated that an income of £50 billion is necessary to generate full employment. The mps is 0.1, the mpt is 0.05 and the mpm is 0.1
\r\n(a) Is there an inflationary or deflationary gap in this situation?
\r\n(b) What is the size of the gap? (Don’t confuse this with the difference between Ye and YF.)
\r\n(c) What would be the appropriate government policies to close this gap?