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

answer; purpose nondisclosure;