Copy_of_DAY_1_PROBLEM_SET_Fisal_Policy.docx - Fiscal Policy...

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Fiscal PolicyProblem Set1.Assume that marginal propensity to consumeis 0.8, and potential output is $800 billion. The governmentspending multiplier is:A.0.8.B.1.25.C.10.D.4.E.5.transfer payments should be increased.2.Assume that marginal propensity to consume is 0.8, andpotential output is $800 billion. If current real GDP is $850billion, which of the following policies would bring the economyto potential output?3.If the marginal propensity to consume is .75, and the federalgovernment increases spending by $100 billion, the incomeexpenditure model would predict that real GDP will increaseby:4.Assume that marginal propensity to consume is 0.8, and potentialoutput is $800 billion. If current GDP is $850 billion:E.transfer payments should be increased.5.Suppose an economy is producing real GDP of $300 billion.The potential output is equal to $400 billion, and the MPC isequal to 0.80. Then the government should follow a policy of:

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Term
Spring
Professor
Andrew Foos

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