Problem: 1: Suppose that a certain country has an MPC of 0.9 and a real GDP of $400 billion. If its investment spending decreases by $4billion, what will be its new level of real GDP? LO 11.5
Problem: 2: Assume that, without taxes, the consumption schedule of an economy is as follows.
|
GDP, Billions
|
Consumption, Billions
|
|
$100
|
$120
|
|
200
|
200
|
|
300
|
280
|
|
400
|
360
|
|
500
|
440
|
|
600
|
520
|
|
700
|
600
|
a. Graph this consumption schedule and determine the MPC.
b. Assume now that a lump-sum tax is imposed such that the government collects $10 billion in taxes at all levels of GDP. Graph the resulting consumption schedule and compare the MPC and the multiplier with those of the pretax consumption schedule.