Ch 12 AD-AS (part 2) and Ch 13 Fiscal Policy Help Save & ExitSubr Saved Calculat

Question

Ch 12 AD-AS (part 2) and Ch 13 Fiscal Policy Help Save & ExitSubr Saved Calculate the resulting change in GDP for each of the following MPCs when the government decreases taxes by $375 billion (change in taxes equals -$375 billion) Instructions: Round your answers to one decimal place. a. The marginal propensity to consume (MPC) 0.2. 10 points The change in GDP is $billion. b. The marginal propensity to consume (MPC) 0.5 Ask Print The change in GDP is $ billion. References c. The marginal propensity to consume (MPC) 0.8. The change in GDP is $ billion.

Explanation / Answer

•The problem mentions an increase in T .: use (-) tax multiplier

–Step : Calculate the Spending and/or Tax Multiplier

•-MPC/MPS = - 0.2/0.8 = - .25

–Step 4: Calculate the Change in AD

•( Tax) * Tax Multiplier= 375*(-.25)= -93.75

2) -1*375= -375

3)0.8/0.2= -4

-4*375= -1500

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