The Canadian economy has a $60 billion inflationary gap and full-employment is at $1600 billion and a price level of 100. If the Marginal Propensity to Consume (MPC) is 0.70, and Marginal Propensity to Withdraw (MPW) is 0.30, calculate the effect of a $10 billion decrease in Government spending. Explain whether this is the right policy to achieve full-employment?

b) How much would government spending need to be changed to return the economy to full-employment at $1600?