Business & finance homework | ECO204 | NATIONAL UNIVERSITY

4. Answer all questions below:

I. What is a recessionary gap, and what condition(s) in the economy can lead to one? (3 points) II. In your own words, explain what the marginal propensity to consume (MPC) is. How is it calculated? Provide a numerical example. (3 points) III. Suppose the recessionary gap is $5,250,000 and the marginal propensity to consume (MPC) is 0.85. How much should autonomous spending increase to close the gap? (3 points) V. An economy has an income multiplier of 15. Explain what this implies about the effect of a $200 million increase in spending on total income, and note one real-world factor that might prevent the full effect from occurring. (4 points) 1/3 Course paper: Due by the end of the term. Top of Form Bottom of Form

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