In each of the following cases, either a recessionary gap or inflationary gap exists. Assume that the aggregated supply curve is horizontal so that the change in real GDP arising from a shift of the aggregated demand curve equals the size of the shift of the curve. calculate the change in government purchases of goods & services and the change in gov trans nec to close the gap. real gdp=$250Billion, potential output=$200billion & maginal propensity to consume is .5

To determine whether a recessionary gap or an inflationary gap exists, we need to compare the current level of real GDP to the potential output.

In this case, real GDP is given as $250 billion and potential output is $200 billion. Since real GDP is higher than potential output, there is an inflationary gap.

To calculate the change in government purchases of goods and services (G) and the change in government transfers and net expenditure (T) necessary to close the inflationary gap, we need to use the concept of fiscal policy and the formula:

ΔG = (1 - MPC) * ΔY

Where:
- ΔG is the change in government purchases of goods and services
- MPC is the marginal propensity to consume
- ΔY is the difference between the current real GDP and potential output

Plugging in the given values:
ΔG = (1 - 0.5) * ($250 billion - $200 billion)
= 0.5 * $50 billion
= $25 billion

So, the change in government purchases of goods and services necessary to close the inflationary gap is $25 billion.

To calculate the change in government transfers and net expenditure (T), we need to ensure that the change in government purchases (ΔG) is balanced by a change in government transfers and net expenditure (ΔT) using the formula:

ΔT = - ΔG

Since the change in government purchases (ΔG) is $25 billion, the change in government transfers and net expenditure (ΔT) is - $25 billion.

Therefore, the change in government purchases of goods and services necessary to close the inflationary gap is $25 billion, and the change in government transfers and net expenditure is - $25 billion.