increase by $10 bilion. , increase by $2.10 billion . decrease by $4.29 billion.

Question

increase by $10 bilion. , increase by $2.10 billion . decrease by $4.29 billion. p. increase by $4.29 billion MPC is.70 and investment increases by $3 billion, the equilbrium GDP will (15 Points) the b) If the MPC is.6, the multiplier will be: C. 2.5 D. 1.67 c) Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP willincrease by A. $3 billion. B. $2/3 billion. C. $6 billion. D. $2 billion econom y. (10 Points) 6. Discuss the options used by fiscal policy to stabilize the

Explanation / Answer

Question 1

A. MPC is .70, therefore, MPS= 1-0.70= .3. Increase in investment is $3 billion. Multiplier = 1/MPS=1/.3= 3.33 x 3 billion = $10 billion

Question 2

C0 2.5. MPC=.6, therefore MPS=.4. Multiplier = 1/MPS= 1/.4=2.5

Question 3.

C) $ 6 billion. MPC=2/3, thefore MPS=1/3 . Multiplier = 1/MPS= 1/1/3= 3. Increases in investments = $2 billion. Level of GDP will increase by $6 billion ($2 billion x 3).

D) Discuss the options used by fiscal policy to stabilize the economy

The options for stabilizing the economy are government spending and taxation. The objective of fiscal policy is to balance the budget.

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