Closing the GDP gap In a closed economy, the behavioral equations of households, firms and government are given below: C = 200 + 0.

Closing the GDP gap

In a closed economy, the behavioral equations of households, firms and government are given below:

                                             C = 200 + 0.75Yd

                                             I = 160

                                             G = 80

                                             t = 20%

(a) Calculate the aggregate planned expenditure (AE) function.

(b) Find the equilibrium income.

(c) What is the value of the autonomous expenditure multiplier?

(d) If the government estimates the full-employment income at 1200, is there an inflationary or a recessionary gap?

(e) By how much should G be increased or decreased to remove the gap?