1. The government spending multiplier is 1/MPS and the tax multiplier is -MPC/MPS = -(1-MPS)/MPS.). Its absolute value is always one less than the simple multiplier and ...

Solution Summary

Calculation of the tax multiplier given the government spending multiplier

Given that the marginal propensity to consume (MPC) is .875:
(1) What is the marginal propensity to save (MPS)?
(2) Calculate the spendingmultiplier.
(3) If the government stimulates the economy via new spending of $150 million:
(a) What is the total projected spending that this could generate throughout the economy

The Federal Government increases spending by $1 billion to develop a new fighter jet. If the MPC in the economy is 0.1, what will be the overall spending effect of the economy?
What does MPC mean?

Suppose that the MPC is 0.8, while the sum of planned investment, government purchases, and net exports is $500 billion. Suppose also that the government budget is in balance.
What is the sum of saving and net taxes when desired spending equals real GDP? Explain.
What is the value of the multiplier?
Explain why the m

The economy of Alphaland is represented by the following:
C= 50 +0.25Yd
T=1000
G=1000
I=1000
(a) Calculate the equilibrium level of output. Graph your solution.
(b) If the governmentspending increases by 50 what is the new equilibrium level of output? Use the governmentspendingmultiplier.
(c) If the government incre

Recall from introductory economics that an increase of $1 in governmentspending may increase GDP by more than $1. The exact amount by which GDP goes up is the multiplier. Using a sample of 41 observations, we estimate the multiplier; its estimated value is 4.0 and its standard error is .4.
a) Find a 90 percent confidence int

1.) While deciding that the country is in a recession, what are the
three tools of fiscal policy that can alleviate a recession?
2.) What fiscal policy tools are available to combat inflation within
an economy?
3.) What is the definition of a budget deficit?
4.) How does a government finance a budget deficit?

Discuss answers to the following questions:
Consider an economy in which: C=100+0.5Y and I=100 - output is equal to income
a) Find equilibrium income.
b) What is the multiplier for consumption spending for this economy?
c) What is the multiplier for investment spending for this economy?
d) What is the marginal pro

Assume that you have the following open economy where C = 10 + 0.8(Y-T); I = 10; G = 10; T = 10 and imports and exports are given by IM = 0.3Y and X = 0.3Y* respectively where Y* is foreign output.
Then solve for the equilibrium output in the domestic economy given Y*. What is the multiplier effect for this open economy? What h