31 May Question 1. What is the total change in RGDP if government spending increases by $700 million and the marginal propensity to consume (MPC) is 0.55? Show your work.
Question
1.
What is the total change in RGDP if government spending increases by $700 million and the marginal propensity to consume (MPC) is 0.55? Show your work.
2.
How much should the government change spending in order to close a $635 million inflationary gap if the MPC is 0.70? Should it increase or decrease spending? How much should it change taxes? Increase or decrease taxes?
3.
If the economy faces a recession, what type of policy should the Federal Reserve Bank employ? Specifically, what must happen to the money supply, interest rates, and AD? What specific tools will the Fed use to accomplish this (there are 3)? What is the effect of the policy on Price Level, Unemployment, Actual RGDP, and Potential RGDP?
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