1. Calculate GDP loss if equilibrium level of GDP is $10,000, unemployment rate 8.8%, and the MPC is 0.75.
a) How much money should the government spend to eliminate this GDP loss?
b) Calculate the tax cut needed to eliminate this GDP loss.
2. Calculate MPC, MPS and the Multiplier if consumption expenditure increases by $4,250 as a result of increase in income from $40,000 to $45,000.
3. Assume that initially G is $300 and equilibrium real GDP is $5000. If the multiplier is 5, what would be the new equilibrium level of GDP if Government expenditures increase to $500?
4. List three reasons why the aggregate demand curve is negatively sloped (downward sloping).