1. Tie fiscal policy initiatives to budget deficits and surpluses.

2. Compute the multiplier if the MPC=0.4. Interpret the multiplier you just calculated

3. CONSIDER THE FOLLOWING CONSUMPTION FUNCTION C = $1,000 + 0.9 YD, WHERE C IS CONSUMPTION AND YD IS DISPOSABLE INCOME. AT A DISPOSABLE INCOME LEVEL OF $20,000, WHAT IS THE LEVEL OF SAVINGS EQUAL TO AND WHY?

7. Assume the economy is in short-run equilibrium and there is less than full-employment output. Also, assume that the marginal propensity to consume (MPC) is equal to 0.8.

a. What is the value of the government spending multiplier in this case?

b. Given the size of the multiplier, what would be the implied change in income (gross domestic product) from the stimulus spending of $500 billion?

8. Name and describe the three different time lags that are present with fiscal policy.

9.Answer the following questions using an aggregate demand-aggregate supply model.

a. Represent an economy at long-run equilibrium.

b. Show what happens when aggregate demand increases.

c. Is this economy in an expansion or recession now?

d. What type of fiscal policy would you suggest be taken by Congress?

6. In each of the cases, determine whether the fiscal policy is expansionary or contractionary and WHY.

a. Several military bases around the country, which together employ tens of thousands of people, are closed.

b. The number of weeks an unemployed person is eligible for unemployment benefits is increased.

c. The federal tax is increased.