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1. Calculate GDP loss if equilibrium level of GDP is $6,000,
unemployment rate 8.5%, and the MPC is 0.90. Hint: (Use
Okun's law to calculate GDP loss, 2times of cyclical
unemployment)
a) How much money should the government spend to
eliminate this GDP loss?
b) Calculate the tax cut needed to eliminate this GDP loss.
2. Calculate MPC, MPS and the Multiplier if consumption
expenditure increases by $6,000 as a result of increase in
income from $40,000 to $48,000.
3. Assume that initially G (Government Expenidture) is $200
and equilibrium real GDP is $5000. If MPC is.9, what would
be the new equilibrium level of GDP if G (Government
Expenditures) increases to $300.
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Answer 1

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