12. The recessionary gap in a country is $1 trillion. The spending multiplier is estimated at 5. (4) a. Find the change in government spending needed to bring the economy back to full employment. b. It turns out that there is a crowding out effect in this economy. What will happen to investment spending as a result of the policy in (a)? c. If real GDP (after the policy in (a)) only increases by $800 billion, what is the change in investment spending?+ d. Government policymakers want to estimate a ?real multiplier? that includes the crowding out effect. Find this multiplier. +Remember, the multiplier effect also applies to the change in investment spending. 13. Based on your answer above, how does the crowding out effect affect ?scal policy? (1)
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