4. (15 points) Barro estimates a tax multiplier equal to -1.1. Use this value to 4 a) (10 points) calculate the value of the mpc in a basic introductory IS model given by the following equations Y =C+I+G=C + mpc * (Y-T) + G 1 - mpc AY 1 AY --mpc AG 1 - mpc AT Show your work. You can type the equations in your original document or include your hand-written calculations as a picture in your pdf. b) (3 points) calculate the value of the government spending multiplier in this model. Show your work. You can type the equations in your original document or include your calculations as a hand-written picture in your pdf. c) (2 points) Empirical estimates of the MPC are usually between 0.65 and 0.9 (the median value is around 0.7-0.8, depending on how disposable income and consumption are defined). Are the numbers you got in part a) consistent with these estimates? This is a yes no question: is the mpc you got between 0.65 and 0.9? 5. (25 pts): Assume that Barro's estimate is right and that a $1 tax increase decrease output by $1.1. Also assume that the economy is described by the basic model given in question 4a). Using your answers from part 4a and 4b, calculate what would happen to US output if taxes decrease by 3 billion dollars and government spending decreases by 2 billion dollars at the same time (20 points correct set up, 5 points correct final answer)