4.) This is an inflationary gap which can be closed by decreasing government spending by $_____. Real GDP = 1500, potential GDP = $1200, MPS = .333
5a.) This is an recessionary gap which can be closed by increasing government spending by $_____. Real GDP = 1500, potential GDP = $1800, MPS = .25
5.) You deposit $500 cash in your checking account. The reserve requirement is 20%. As a result of your deposit the money supply immediately increased by $ _______ and the potential increase in the money supply is $______.
8.) If the Fed reduces the reserve requirement to 5% from 20% and banks currently hold $100 in required reserves and no excess reserves the money supply potentially )increase, decrease) _____ by $______.
