1. Suppose the consumption function is
C = $309 billion + 0.9Y
If the government increases spending on new goods and services by $50 what is amount of the cumulative shift in AD? Enter your answer in whole numbers. For example, if your answer is $450.25 then enter 450
2. If the AD shortfall is $600 billion and the MPC is 0.8, how large is the desired fiscal stimulus?
If your answer is $50 billion then enter 50
1.Multiplier (k)=1/1-MPC
k=1/1-0.9
k=10
Increase in government stimulus=50
Cumulative change in GDP=k*change in spending
Change in GDP=10*50=500
2.600=k*desired fiscal stimulus
K=1/1-0.8
K=5
Desired fiscal stimulus=600/5=120
Required amount of fiscal stimulus=120
1. Suppose the consumption function is C = $309 billion + 0.9Y If the government inc...
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