Answer one of the following options (Option A or Option B) 250 words
250 WORDS
Option A: Describe the fiscal policy remedies that a Keynesian economist might prescribe to close a recessionary gap. What impact would these policy changes have on the federal budget deficit and the public debt?
Option B: What type of relationship exists between the marginal propensity to consume (MPC) and the multiplier? Explain why this relationship exists. Give a hypothetical numerical example to help support your answer.
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Discussion
Option A
A recessionary gap, also known as an inflationary gap is a term that is used to describe an economy that is operating below the full-employment equilibrium. In such a scenario, the level of the GDP within the country is usually lower than full employment (Kose, Terrones, & International Monetary Fund. 2015).
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