Problem 1
Assume that in Period 0 we have Y=200, C=180, G=0 and MPC=0.75. Assume in period 1 only G increases by 30. How much will output/income (Y) ultimately increase? Show your calculations.
Problem 2
Based on Problem 1, assume that G=0 in all periods but in period 1, taxes decline by 15. What happens to output/income(Y)? Show your calculations.
Problem 3
Based on problem 1, assume G increases by 15 but taxes increase by 15 to maintain a balanced budget. What happens to output/income (Y) in this case? Show your calculations.