1. In a closed economy with government, the government spends 3bn on education within the country, the citizens consume on average 90% of their income and the tax burden is 50%. Work out

a) the value of the multiplier?

b) How much the country's National Income will increase by?

2. A closed economy opens itself to International Trade and due to the fact that domestic industries are very competitive the demand for exports is 1bn. Given a marginal propensity to save of 0.3 and an average expenditure on imports 40%, given a GDP figure of 30bn, what will be the new GDP figure? What withdrawal has not been included in this transaction?

3. An increase in import tariffs is introduced. What effects will this have on the Multiplier?

4. A government in an open economy announces a decrease in Income tax. Explain the effects this will have on the country's multiplier?

5. Think of another factor besides changes in interest rates and taxes that could affect the value of the Multiplier and give a description of the effects of this factor.