In 2016, economists forecast the U.S. MPS will be 0.15 and the MPM will be 0.10. Estimate the maximum overall total effect on national income of the following two changes in fiscal policy:
a) A decrease in govt spending of $100 billion and a decrease in taxes of 50 billion.
b) If fiscal policy is unchanged (ignore part a above) but GPDI from business increases as below, what will be the maximum impact on national income?
An increase in planned business investment spending of $60 billion without any change in fiscal policy.
c) What are some reasons why the maximum multiplier effect might not happen in the U S?