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Questions › IIT JAM › IIT JAM 2022 › Q43
1 markMacroeconomics › Keynesian cross and the multiplier › Deflationary and inflationary gapsModerateabout 2 min

IIT JAM 2022 Question 43: Keynesian cross and the multiplier

The full-employment level of output is Rs. 2200 million, the expenditure-determined level of output is Rs. 2163 million, and the marginal propensity to consume is 0.75. The deflationary gap equals Rs. _______ million (round off to 2 decimal places).

Answer and worked solution

Answer: 9.25 to 9.25

The deflationary gap is the shortfall in autonomous expenditure that produces the output gap, equal to the output gap divided by the multiplier 11−MPC\dfrac{1}{1 - MPC}1−MPC1​.

So the gap is (2200−2163)(1−0.75)=37×0.25=9.25(2200 - 2163)(1 - 0.75) = 37 \times 0.25 = 9.25(2200−2163)(1−0.75)=37×0.25=9.25 million. The answer is 9.259.259.25.

Keynesian cross and the multiplier has come up 167 times in 7 exams since 2006.

What this question tests

This question is on Deflationary and inflationary gaps, part of Keynesian cross and the multiplier in Macroeconomics.

The gap between equilibrium and full-employment output, and Keynesian involuntary unemployment.

TestStop has 7 past-paper questions on this subtopic.

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Question from the IIT JAM 2022 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.