1.Identify and name any one cause of the instability found in investment spending.

2.If the MPC is 0.75 and investments should increase by $8 billion, what change will occur to GDP? Show all work.

3.According to Keynesian fiscal policy, what appropriate discretionary fiscal policy could be used when the economy is in a recession? (Use any one example)

4.Provide any one example of an automatic stabilizer.

5.Suppose the MPC is 0.90. If the government wishes to increase aggregate demand (total spending) by $60 billion to eliminate the GDP gap, the government's discretionary spending would need to increase by what amount? Show all work.

6.There are many causes of the public (national) debt. Provide any one major cause.

7.Refer to the table. Calculate the public (national) debt. Show all work.

Government Spending Tax Revenue GDP

Year 1 $800 $835 $4,500 b

Year 2 850 850 5,000

Year 3 975 910 5.700

8.Refer to the following data. Calculate the budget deficit or surplus for Year 3.

Government spending Tax Revenues GDP

Year 1 $450 $425 $2,000 b

Year 2 500 450 3,000

Year 3 690 650 4,000