Problem 1:Show all formulas and all work

Given:Ru_{full employment}= 2%

Ru= 4%

Potential GDP= $12,000billion

MPC== .75

1.Find the multiplier

2.Find GDPGAP

3.Find the Recessionary Expenditure GAP

4.Find the Government Spending that could close the GDPGAP

5.Find the Tax change that could close the GDPGAP

6.Find the amount of spending necessary to close the GDPGAP under a Balanced Budget spending program.

Problem 2:

Indicate 2 built-in stabilizers and how they function during a recessionandexpansion.

Extra Credit Continued on next page

Problem 3:

Present a table that th and indicates what is done with each tool to 1) stimulate the economy and to 2) restrain the economy.

Problem 4:

There are two basic philosophies in Congress:

1.those who believe in small government

And2.those who believe the Federal Government should provide many Social Programs

Indicate how those holding each of the philosophies above would use the 2 Fiscal Policy Tools to a)stimulate the economyandb) restrain the economy.