Question 1:

The country of Keynesland is producing at their equilibrium GDP of $100 b of output.In the past fiscal year, the increase in overall Disposable Income was $100 m and overall consumption increased by $60m.

Recently, there has been a drop in consumer confidence which has produced a recessionary gap of $40 billion.

The council of economic advisors knows that they must act quickly.

You are the chairman of the council.You must calculate the following before you make your recommendations:

What is the MPC?_______________

What is the MPS?_______________

What is the multiplier?____________

If the government wanted to increase government spending to close the recessionary gap, how much "G"would be required?______________

Question 2:

Based on the information in this chapter, what is the risk of too much injection into the economy to offset a recessionary gap?