1/ If there a $2billion increase in government spending, other things being equal, what would be the resulting change in aggregate demand, and how much of the change would a change in consumption, if the MPC were the following:

a. 1/3?

b .1/2?

c. 2/3?

d. 3/4?

e. 4/5?

2/ The economy is experiencing a $225 million inflationary gap. If the government decided to solve this macroeconomic disequilibrium using a change in taxes, would you recommend an increase or decrease in taxes? If the MPC =0.9, what magnitude of tax change would be appropriate?

3/ The economy is experiencing a recessionary gap of $30 billion. If the MPC=0.75, what government spending stimulus would you recommend to move the economy back to full employment? If the MPC=0.66