Assume that equilibrium real GDP is $18.2 trillion and full-employment equilibrium (FE) is $18.55 trillion. The marginal propensity to save is 1/7. Answer the questions using the data in the following graph.

a. What is the marginal propensity to consume?
b. By how much must new investment or government spending increase to bring the economy up to full employment?
c. By how much must government cut personal taxes to stimulate the economy to the full employment equilibrium?

Transcribed Image Text:

Spending = real GDP FE C+1+G+X 45° 0 18.2 18.55 Real GDP per Year ($ trillions)