PLEASE HELP: \"Assume that Jamaicans\' taxes, imports, and saving behavior means

Question

PLEASE HELP: "Assume that Jamaicans' taxes, imports, and saving behavior means that two-thirds of any change in income will survive leakages of tax, import spending, and saving. With this information you can calculate the multiplier at work in the Jamaican economy.

Assume also that Jamaica's potential GDP = $400b and that actual GDP = $340b. With this information you can calculate Jamaica's GDP gap.

What would be the initial change in spending that will bring the economy to full employment -that is, what is the appropriate dosage of additional spending that will close the GDP gap?

Desired change in initial spending = +$____billion
[Answer with a whole number: no dollar sign and no decimal] "

Explanation / Answer

The increase in GDP will equal the multiplier times the increase in spending The GDP gap is 400 - 340 = 60. This is how much we want to increase GDP. The multiplier is equal to 1/1-MPC. MPC is given as 2/3, so the multiplier is 1/(.333) = 3. We now have that increase in GDP (60) = multiplier (3) * increase in spending (x) 60 = 3x. Solve for x. 20 = x This is the desired change in initial spending

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