ECON 101 – Worksheet 3 G. Pichop

Economics class
ECON 101 – Worksheet 3 G. Pichop
Name: Due Tuesday 05/07/2017
1
Use the following assumptions to calculate the Multiplier and the change in GDP due to a
change in government spending or taxation:
Government Spending Multiplier (MUG) =
1
(1-??????)
Taxation Multiplier (MUT) = -??????
(1-??????)
Change in GDP due to change in Government Spending = ?????? × ??? Where ?G is the change in
government spending.
Change in GDP due to change in Taxes = ?????? × ??? Where ?T is the change in taxation.
1. Calculate the government-spending multiplier in each of the following examples.
a) The marginal propensity to consume (MPC) = 0.2.
b) The marginal propensity to consume (MPC) = 0.5.
c) The marginal propensity to consume (MPC) = 0.8.
ECON 101 – Worksheet 3 G. Pichop
Name: Due Tuesday 05/07/2017
2
2. Calculate the resulting change in GDP for each of the following MPCs when the
government increases its spending by $250 billion. For each, comment on the
relationship between the MPC and the resulting change in GDP—as the MPC rises, does
its effect on GDP increase or decrease?
a) The marginal propensity to consume (MPC) = 0.2.
b) The marginal propensity to consume (MPC) = 0.5.
c) The marginal propensity to consume (MPC) = 0.8.
ECON 101 – Worksheet 3 G. Pichop
Name: Due Tuesday 05/07/2017
3
3. Calculate the resulting change in GDP for each of the following MPCs when the
government decreases taxes by $250 billion (change in tax equals –$250 billion).
a. The marginal propensity to consume (MPC) = 0.2.
b. The marginal propensity to consume (MPC) = 0.5.
c. The marginal propensity to consume (MPC) = 0.8.
ECON 101 – Worksheet 3 G. Pichop
Name: Due Tuesday 05/07/2017
4
4. Econo Nation started 2008 with no national budget debt or surplus. By the end of 2008,
it had a budget surplus of $304 million; in 2009, it had a budget deficit of $452 million;
in 2010 it had a bud-get surplus of $109 million, and the amount of its budget deficit or
surplus in 2011 is unknown. If at the end of 2011 Econo Nation’s national debt totaled
$50 million, did Econo Nation run a deficit or a surplus in 2011? How much was the
deficit/surplus?

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