Question 12 (2 points)

Assume that taxes depend on income and the MPC is 0.75 and the progressive tax (t) is 0.1. An increase government spending of $10 billion will increase equilibrium income by:

Question 12 options:

	$16.5 billion
	$23.08 billion
	$27 billion
	$30.77 billion

Question 13 (2 points)

Suppose a recessionary output gap of $1000 exists. Suppose that the marginal propensity to consume (b) is 0.75 and the progressive tax rate is 0.2. To get rid of the recessionary output gap, the government can either increase government spending by $400 or cut taxes by $400 to get rid of the output gap.

Question 13 options:

	False
	True

Question 14 (25 points)

Question 14 options:

Suppose you have the following data for an imaginary economy:

C = $1300 + 0.75Yd

T = $800 + 0.2Y

I = $800

G=$1800

EX - IM = $0

Solve for the demand function in terms of Y. For your answer, just put the intercept term for the demand function (don't forget the dollar sign, i.e. $2000)

What is the slope of the demand function? Round three decimal places

What is the equilibrium output? (Don't forget to add the dollar sign, example, $2000)

What is the government spending multiplier? Make sure to round three decimal places

What is the lump-sum tax multiplier? Make sure to round three decimal places