Question: 1. Suppose the marginal propensity to consume is 0.6, the marginal tax rate is 0.25, and the the marginal propensity to import is 0.2. What is the multiplier?
2. Suppose that in the economy described in the previous question, government spending increases by 10. What is the change in GDP?
3. Again, suppose that in the economy described in Question 10, government spending increases by 10. What is the change in the government budget balance? If the government budget would move toward deficit, your answer should be a negative number.
Hint: Remember, the government balance is the difference between taxes and government spending.
4. Again, suppose that in the economy described in Question 10, government spending increases by 10. What is the change in the trade balance? If the country would move toward a trade deficit, your answer should be a negative number.