9:53 PM ccsu.blackboard.com .11 AT&T; QUESTION 6 2 points Save Answer If the fed

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9:53 PM ccsu.blackboard.com .11 AT&T; QUESTION 6 2 points Save Answer If the federal government were to increase its spending by 10 million dollars, and the economy's marginal propensity to consume is 0.80, then the spending multiplier is and GDP would increase by $ million. QUESTION 7 2 points Save Answer If the federal government were to increase taxes by $5 million and the economy's marginal propensity to consume is 0.80, then the tax multiplier is and the resulting change in GDP would be $ million. QUESTION 8 2 points Save Answer The economy is in a recessionary gap and needs to increase GDP by $12 million and they know that the marginal propensity to consume is 0.75. If the government chose to increase spending in order to close the gap it would have to change G by million. If it chose to close the gap using taxes it would have to change T by $ million. Click Save and Submit to save and submit. Click Save Answers to save all answers Save All Answers Save and Submit

Explanation / Answer

(Question 6)

Spending multiplier = 1 / (1 - MPC) = 1 / (1 - 0.8) = 1 / 0.2 = 5

GDP would increase by ($10 million x 5) = $50 million.

(Question 7)

Tax multiplier = - MPC / (1 - MPC) = - 0.8 / 0.2 = - 4

Change in GDP would be [$5 million x (- 4)] = - $20 million (Decrease)

(Question 8)

Spending multiplier = 1 / (1 - 0.75) = 1 / 0.25 = 4

Tax multiplier = - 0.75 / 0.25 = - 3

Government will change G by ($12 million / 4) = $3 million (Increase), or

Government will change T by [$12 million / (-3)] = - $4 million (Decrease).

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