Suppose a private closed economy has an MPC of .8 and a current equilibrium GDP of $7400 billion.
What is the multiplier in this economy?
Now suppose the economy opens up trade with the rest of the world and experiences net exports of $20 billion. What impact will this have on equilibrium real GDP?
Next suppose a government is introduced, and plans to spend $100 billion. By how much will this change in spending ultimately cause GDP to change, and in what direction?
In order to finance this expansion of government spending, suppose the government decides to levy a lump-sum tax of $100 billion. By how much will GDP change, and in what direction?