The present level of the exports of Piranha is $20 billion; investment is $ 30 billion; gov- ernment expenditure is $ 65 billion; total consumer spending is $ 55 billion; imports are $ 15 billion; and expenditure taxes are $ 10 billion. The economy is currently in equilibrium. It is estimated that an income of $ 139 billion is necessary to generate full employment. The marginal propensity to save mp, is 0.2, the marginal propensity to tax mp, is 0.35 and the marginal propensity to purchase imports mpm is 0.05. (a) By setting out your calculations, show whether there is an inflationary or deflationary gap in this situation. (b) What is the size of the gap?
