1a) Suppose that MPC = 4/5. What is the size of the Keynesian multiplier? Show your work.

1b) Given the MPC = 4/5, if we see a change in government spending of $100 billion and a change in taxes of$100 billion, by how much will GDP change? Show your work.

2a) If the economy is in a recession, what is the appropriate policy action from a neoclassical perspective? Explain.

2b) From the neoclassical perspective, what is the shape of the Phillis curve? Why?

2c) Compare rational expectations to adaptive expectations.