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

### Recently Asked Questions

- What are the annual loan payments and what is the effective borrowing cost? If a lender offers a 15-year, $3,250,000 ARM with a starting rate of 6%. There

- What health insurance premium would a risk neutral person be willing to pay?

- How do you calculate the effective borrowing cost and prepayment penalty comparing loans on a fully amortizing loan for $2,000,000 over 30 years? The first