1.Assume the MPC is 0.80 and the government increases spending on cancer research by $15 billion. What is the value of the initial impact on real GDP? What is the value of the total impact on real GDP?

2.Assume the MPC is 0.80 and policy makers have targeted real GDP to increase by $200 billion. By how much must the government reduce taxes to achieve this goal?

Year Tax Revenue in trillions Government Spending on Goods and Services in trillions Transfer Payments in trillions

2008 $2000 $1200 $600

2009 $1600 $1500 $900

2010 $1700 $1400 $700

2011 $2200 $1000 $500

2012 $2400 $1600 $800

3.Using the data above for the country of Macroland to answer the following questions:

a)How do you compute the budget balance?

b)What is the value of the budget balance for each year in the table? Is there a government surplus, deficit, or balance each year?

c)Determine the value of the government debt for the period 2008-2012.

d)How is the category of payments in TR distinct from those in Government spending on goods and services?

4.Potential output in the US was $15.33 trillion in 2008. Actual GDP that year $14.55 trillion. Assume that the MPC is 0.5.

a)Compute the dollar amount of the recessionary gap.

b)What change in G would close this gap?