1) Assume that the consumption function for the above economy is C = 1000 + .8Yd.

Fill in the empty cells and show calculations work.

Output	Taxes	Disposable Income	Consumption Spending	Saving
5000	1000
7000	1000
9000	1000

Planned Investment	Government Purchases	Planned Aggregate Expenditure
1000	1000
1000	1000
1000	1000

2)) a. Suppose that the MPS = .25 and the government is interested in raising the level of output in the economy by $100 billion. Calculate how much the government would have to spend to achieve this objective. Explain how you derived your answer.

b. Calculate how much output would expand by if the government increased spending by $300 billion and financed this spending by increasing lump-sum taxes by the same amount. Explain your answer.

3) a. In your own words define the tax multiplier and give the algebraic expression.

b. Explain how the multiplier process differs after a rise in government consumption, compared with a tax cut.

4) a. Explain what the balanced budget multiplier is.

b. Prove that the balanced budget multiplier is equal to one by using the government and tax multipliers.

c. . Define automatic stabilizers. Give some examples