1. An economy is initially at full employment, but a decrease in planned investment spending (a component of autonomous expenditure) pushes the economy into recession. Assume the mpc of this economy is 0.75 and that the multiplier is 4. a. How large is the recessionary gap after the fall in planned investment? b. By how much would the government have to change its purchases to restore the economy to full employment? c. Alternatively, by how much would the government have to change taxes?
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