Question 11 (13 marks)

This question is about using G (or G) to influence output (or Y).

A.

From the consumption function, Interpret the value of Marginal Propensity to Consume (MPC =

0.3363, or 33.63%)

( 1

mark)

B.

Calculate the spending multiplier and interpret it

(3 marks)

C.

Calculate the tax multiplier and interpret it

(3 marks)

D.

Based on your calculations in 2 and 3, do you suggest that the government uses spending (G) or

Taxes (T) to stimulate the economy in the SAUDI ARABIA and why?

(2 marks)

E.

Assume that the government increases its spending by SAU50 billion (increase in spending G, or

G

). Calculate the expected increase in output (

Y)

as a result of this increase in G?

(2

marks)

F.

If the population is about 30 million, what is the increase in per capita GDP per capita as a result of

this SAR 50bn increase in G?

(2

marks