1) The following data applies to the economy:
|
Personal Income
|
Consumption
|
|
$10000
|
$7000
|
|
$12000
|
$8000
|
|
$14000
|
$9000
|
The tax rate is 25%. What is the marginal propensity to consume?. What is marginal propensity to save? What is the multiplier for the economy?
2) The marginal propensity to consume is 60%. Government spending increases by $500,000. What is the numeric change in real GDP? What type of spending is this called?
3) The marginal propensity to consume is 75%. Disposable income increases by $500,000. What is the numeric change in real GDP? What type of spending is this called? What is the difference from 2)?
4) The economy is in an inflationary gap of $1,500. What is one fiscal policy the government can undertake to bring the economy to back to the natural unemployment rate? Graph using the total expenditures and total production model and explain how the policy would work. Be numerically precise, using the information in 1).
5) The economy is in a recessionary gap of $1,200. What is the other fiscal policy the government can undertake to bring the economy to back to the natural unemployment rate? Graph using the AD/AS model and explain how the policy would work. Be numerically precise, using the information in 1).