We found GDP in 2010 was roughly $15,000 billion. You learned in Chapter 1 that GDP fell by approximately 3 percentage points in 2009. Use the simplest model of fiscal policy from Chapter 3 to answer the following.
1. How many billion dollars did GDP fall by in 2010?
2. If the propensity to consume were 0.5, by how much would government spending have to have increased to prevent a decrease in output?
3. If the propensity to consume was 0.5,by how much would taxes have to have been cut to prevent any decrease in output ?