1. Calculate GDP loss if equilibrium level of GDP is $6,000, unemployment rate 8.5%, and the MPC is 0.90. Hint: (Use Okun's law to calculate GDP loss, 2times of cyclical unemployment)

a) How much money should the government spend to eliminate this GDP loss?

b) Calculate the tax cut needed to eliminate this GDP loss.

2. Calculate MPC, MPS and the Multiplier if consumption expenditure increases by $6,000 as a result of increase in income from $40,000 to $48,000.

3. Assume that initially G (Government Expenidture) is $200 and equilibrium real GDP is $5000. If MPC is .9, what would be the new equilibrium level of GDP if G (Government Expenditures) increases to $300.