AP MACROECONOMICS TOPIC 3.2 Multipliers M Ultimate Review Part 1: Multiplier Practice- Fill in the chart with the marginal propensity to consume (MPC), marginal propens (MPS), simple spending multiplier, and the maximum change in spending that occurs as a result of each chaney Change (in billions MPC MPS 1: P Multiplier Maximum Change in Spending (in billions $100 increase in consumption $400 increase 2 . $500 increase in government spending 0.8 0.2 5 + 2, 500 Dur 3 Offe $200 decrease in exports D. 9 0.1 2000 The 1000 D. 5 0. 5 2 $2,000 increase 200 5. $40 decrease in investment spending $400 decrease In 2 Part 2: Making Connections- In 2009, the US Federal government cut taxes by approximately $300 billion, increased Fro government spending by approximately $300 billion, and increased transfer payments by approximately $200 billion. Answer the following questions assuming that the marginal propensity to consume was 0. 75. 6. Frc What was the maximum change in GDP from the government spending? Show your work. 7. What was the maximum change in GDP from the tax cut? Show your work. 8. What was the maximum change in GDP from the government transfers? Show your work. 9. Assume instead that American consumers, fearing an economic collapse, increased their marginal propensity to save to 0.5. Would this increase, decrease, or not change the effectiveness of the stimulus package? Explain. 10. Assume the marginal propensity to save was 0.5 instead of 0.75. Calculate the maximum change in GDP from the entire stimulus package? Show your work. Part 3: More Practice- Assume that in the year 2025 the US economy is in a recession that would require a $1 Trillion increase in total spending to get back to full employment output. Answer the following questions assuming that the marginal propensity to consume is 0.8. 11. Identify the least amount the government could spend to get the economy back to full employment. Show your work, 12. Identify the dollar amount of a tax cut to bring the economy back to full employment. Show your work. Part 4: Stretch Your Thinking- Answer the question. 13. Suppose that Bob earns $20,000 a year and that Jimena earns $200,000 a year and that both earn a 10% increase in their disposable income. Who do you think is likely to have the higher MPC? Explain your reasoning. Copyright Jacob Clifford. Annual license required Do not use unless you have purchased a license Copyright Jacou Umm of use unless you have purchased a license