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04142011, 11:16 PM  #1 
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Economics help!
I am totally lost. A little help, please?
1. Assume that the MPC is .7 and the formula for the fiscal multiplier is as follows: 1/(1MPC) Show your work for each part of the equation: By how much will AD at current prices shift/increase with A.) A $185 billion increase in government purchase B.) A $185 billion tax cut What will the cumulative or total AD shift/increase be(after the multiplier effect) for: C.) Part A Above D.) Part B Above. Assume the Economy has a recessionary GDP gap of 615 billion and an upward sloping AS curve. Will the cumulative impact oft he increase in government spending in part (C) be enough to close the GDP gap? Explain. 
04142011, 11:56 PM  #4 
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04152011, 12:18 AM  #5 
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a.
1 / (1  .7) 1 / .3 3.33 or 3 1/3 multiplier b. (.7) / (1  .7) (.7) / (.3) 2.33 or 2 1/3 c. [($185) x (.7)] / (1  .7) $129.5 / .3 = $431.66 or $431 2/3 billion d. ($185) / (1.7) $185 / .3 = $616.66 or $616 2/3 billion e. No, based off the multiplier of $185 billion increased government spending, the result will be $431.33 billion. Unlike the tax cut, the same amount in government spending will not be enough to close the gap of $615 billion. A tax cut of $185 billion would close the gap, using the multiplier. its been awhile, but everything should be correct. i'm 80% sure e is right, but look over it to make sure it makes sense.
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04152011, 12:19 AM  #6  
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04152011, 12:20 AM  #7  
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04152011, 12:22 AM  #9 
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04152011, 12:51 AM  #11 
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No need to fear, Skinnycow was here.

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04152011, 12:51 AM  #12 
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04152011, 12:52 AM  #13 
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what collin said

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04152011, 07:37 AM  #17 
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04152011, 12:56 PM  #18 
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04152011, 12:59 PM  #19 
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Skinny, I would like to inform you that you still have it. Got it right. Thanks.

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04152011, 03:15 PM  #20  
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04152011, 07:23 PM  #21 
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