If the mpc = .80, all taxes are lump-sum taxes, and the equilibrium gdp is $40 billion below the full-employment gdp, the size of the recessionary gap is

a) $40 billion
b) $20 billion
c) $8 billion
d) cannot be determined from the information given

recessionary gap = 8 billion

so correct option is c) $8 billion

Explanation:

given data

MPC = 0.80

GDP = $40 billion

to find out

the size of the recessionary gap

solution

we get here first Multiplier  that is

Multiplier  =     ..................1

Multiplier  =

Multiplier  = 5

so recessionary gap will be

recessionary gap =     ................2

recessionary gap =

recessionary gap = 8 billion

so correct option is c) $8 billion

the answer is "b.the increased supply will create a surplus. "

the essential thought behind price controls is straightforward - utilize the power of law to modify the equilibrium of a market. for instance, the legislature may choose that the steel business needs to survive, and in this way pass a law to set a value floor on steel. this implies all steel sold must offer at or over the floor value, which must be set over the equilibrium cost for it to have any impact. the switch could likewise happen - the administration can choose that steel is excessively costly and set a value roof underneath its equilibrium value, with the goal that all steel must be sold at or beneath that ceiling.