1. What is the tax multiplier for each of the following?

a.The MPC = .9.

b.The MPS = .2.

c.The MPC = .75.

d.The MPS = .33.

2.The MPC = .8.Find the change to real GDP.

a.Investment increases by $1000.

b.Net exports decrease by $5000.

c.Government purchases increase by $2000.

d.Consumption decreases by $6000.

e.Income increases by $10,000.

f.Taxes decrease by $5000.

3.The government wants to increase GDP and is trying to decide whether to increase government purchases by $1 billion or reduce taxes by $1 billion.Which one will produce a larger increase in real GDP?Explain why.

4.The government cuts taxes by $40 million and reduces spending by $40 million to pay for the tax cut.The MPS = .25.What will happen to real GDP as a result of the government's actions?Will AD increase, decrease, or remain unchanged?

5.The government cuts taxes by $40 million and reduces spending by $40 million to pay for the tax cut.The MPS = .25.What will happen to real GDP as a result of the government's actions?Will AD increase, decrease, or remain unchanged?

6. What 2 methods does the government have for implementing expansionary fiscal policy? When is the correct time for the government to implement expansionary fiscal policy?

7. If the government elects not to implement expansionary fiscal policy at the appropriate time, what will happen to the SRAS curve as the economy adjusts to a new long-run equilibrium? Explain.

8. What 2 methods does the government have for implementing contractionary fiscal policy? When is the correct time for the government to implement contractionary fiscal policy?

9. If the government elects not to implement contractionary fiscal policy at the appropriate time, what will happen to the SRAS curve as the economy adjusts to a new long-run equilibrium? Explain.