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For the following questions assume the model: f(Y) ie, MPI = O Tx=Txo 5. Given a saving function of -25 + .25 Yd, a $10 billion tax cut will increase...

For the following questions assume the model: :

      f(Y) ie, MPI = O     Tx=Txo



5.2. Given a saving function of -25 + .25 Yd, a $10 billion tax cut will increase the level of income by:

a.  $25 billion

b.  $30 billion     d. $50 billion

c.  $40 billion     e. $60 billion


5.3. If the MPC is zero, the investment multiplier is:

a.  infinite

b.  one       d. indeterminate

c.  zero      e. one less than the tax multiplier.


5. 4. Given C = 20 + .8Yd, a $10 billion tax cut would shift the consumption function upward by: (Note what is being asked for, and work it out)

a.       $10 billion.

b.       more than $10 billion.

c.       less than $10 billion.

d.       cannot be determined.


5.5. If the MPS is 0.4, which of the following is not true?

a.  the MPC must be 0.6

b.  the investment multiplier is 2.5

c.  a $40 billion drop in investment spending will reduce the level of income by

$100 billion

d.  there must be negative saving in the economy

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