Suppose an economy is producing real GDP of $300 billion. The potential output is equal to $400 billion, and the MPC is equal to 0.80. Then the government should follow a policy of:

Government should use expansionary policy to increase spending by $20 billion or decrease taxes by $25 billion or use a balanced budget policy of increasing taxes and spending by $100 billion.

Explanation:

GDP gap = Real potential GDP -actual real GDP  = $400 billion - $300 billion = $100 billion

Multiplier = 1/(1-MPC) = 1/(1-0.8) =5 . The required change in spending to eliminate gap = Gap/multiplier = $100 billion / 5 = $20 billion

Tax multiplier = -MPC / (1-MPC)  = -0.8/(1-0.8) = -4

Points are: The required change in taxes to eliminate =100/(-4) = -$25, the minus sign shows a decrease , the tax should be decreased by $25

being born in poverty would limit the people's chances, opportunities and benefits.

this happen because of several things, such as:

- poor people tend to gain less access to good education and nutrition. this mean that their chance to obtain high paying jobs would also be limited.

- poor people tend to socialize with other poor people while the rich tend to socialize with other rich people. this means that simply throguh their social circle, rich people would have more business opportunities compared to the poor people.

- rich people tend to have more capital in their disposal. this would benefit them in business since it is far easier for them to fund their business operation compared to poor people.