1. A. What is the spending multiplier when MPS= 0.55 and MPI=0.35?

B. What is the level of Real GDP if government spending increases by 300 million?

(2-3) Use this data to compute V1 velocity based on M1; and v2 velocity based on M2. Fill in the blanks in the chart below.

*billions of dollars

Year Nominal GDP M1 M2 11. v1 12. v2

1994 7,054.30 1,145 3,495

1995 7,400.50 1,142.50 3,566.30

1996 7,813.20 1,105.80 3,737.10

1997 8,318.40 1,069.10 3,920.30

1998 8,781.50 1,079.80 4,207.40

4. Fill in the blank

Year M V P Y

1 4 15.00 100

2 4 15.00 150

3 5 15.00 125

4 7 15.00 150

5 3 15.00 115

5. Fill in the blank

i ETT requil

10 3

7 19

-6 7

6.Consumer Saves 25% of additional income, spend 60% of income on goods and services and 10% on Imports. What is the tax multiplier?

7.Explain the difference between expansionary and contractionary Fiscal Policy.

8. Illustrate graphically what occurs to AD (Aggregate Demand) when there is a decrease in Investment.

(9-10) Scenario 2: Suppose MPS=0.68 and MPI=0.17

9. What is the spending multiplier?

10. What is the level of real GDP if the government increases spending by 300 million dollars?

11. What is the level of real GDP if the government decreases spending by 350 million dollars?

(12-13) A free market has a demand curve Qd = 500 - 5p and a supply curve Qs = - 250 + 5p

12. Graph the Free Market. Label all points.

13.Calculate the Consumer Surplus and Producer Surplus for this market. Illustrate Graphically.

14. Consider a controlled price of $65 was implemented to this free market.