The Keynesian Model

1. The model with exogenous taxes (T=T ) has a multiplier on investment of 1/(1-mpc). The model with proportional taxes (T=tY) has a multiplier on investment of 1/(1-mpc(1-t)). Explain in words why they differ. 2. What happens if everyone decides to cancel their holiday shopping and save more? That is, assume C = C + mpc(Y-T), T = T , and there is a decline in C . What happens to Y? To national saving (= Y - C - G). Explain what is going on. 3. How do current fiscal policies in Germany, China, and United States affect aggregate demand? 4. What is a current event in the last month or so related to contractionary or expansionary fiscal policy? Can you relate a news article's implied theory of causes or effects with what we study in this class? These articles should be about large-scale effects on government deficits or surpluses, not the incentive effects of taxes.