# Pts given that the mpc8 we know that 2 of every

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Question 53 / 3 ptsGiven that the MPC=.8, we know that .2 of every dollar increase in gross income is saved. Since the increase in income is \$100, we know the leakage due to savings is:\$10020 cents
\$20\$80We have three leakages: tracing out 100: for every additional dollar in gross income, the consumer saves 20 cents since the mpc = .8. The government gets 25 cents since the tax rate is .25. And finally, 20 cents is leaked out to the purchase of imported goods. Multiplying by 100 we have the following: Y up by 100, savings up by 20, taxes up by 25, imports up by 20, consumption up by 35
Question 63 / 3 ptsTo find out how much consumption increases we need to take the increase in income (\$100) and subtract out the leakages. So take the \$100 and subtract your answers from #3, #4 and #5 above. When income increases by \$100, consumption increases by:
Question 73 / 3 ptsWhat would happen to the multiplier if the mpi rises to .25? Round to 2 decimal places.the new multiplier is .65
Question 83 / 3 ptsWhat would happen to the size of the leakage if the mpi rises to .25?
Question 94 / 4 ptsIn this question, we are going dig deeper into the Taylor Rule and it variants (modifications).Federal Reserve data from October 1, 2011:Potential GDP growth y* = 1.7%Actual GDP Growth yA= 2.0% Inflation PCE (actual inflation) πA= 2.6% Effective Federal funds Rate = .07%As Taylor assumed, we assume the equilibrium real rate of interest r* = 2% and the optimal inflation rate, the target inflation rate π* is also equal to 2%.The standard (original) Taylor rule formula: ifTR= r* + πA+ 0.5[πA- π*] + 0.5 [ yA- y*]Using the 'standard' Taylor rule from above and using the data provided, what is the federal funds rate implied by the 'standard' Taylor Rule?3.33%
5.05%1.56%2.04%Data as of 4th quarter 2011Original Taylor Rule: iffTR= r* + πA+ 0.5[πA- π*] + 0.5 [ yA- y*]5.05 = 2 + 2.6 + .5[2.6 - 2] + .5[2.0 - 1.7]