FISCAL POLICY AND THE MULTIPLIER - REVIEW

Use these graphs to answer the questions that follow

For the answers see: http://www.harpercollege.edu/mhealy/eco212i/lectures/fiscpol/fpexamans.htm

Our overall goal is to learn HOW MUCH the government has to change spending or taxes to achieve full employment.

1. What is the MPC? ______________
   
2. What is the MPS? ______________
   
3. What is the simple multiplier? ______________
   
4. What is the current equilibrium level of output in this economy? ______________
   
5. What level of output can be achieved if this economy had full employment? _____________
   
6. What change in government spending is needed to achieve full employment?
   
   
   
   
   
   
7. What is the lump-sum tax multiplier? ______________
   
8. What change in taxes could the government enact to achieve full employment?
   
   
   
   
   
   
9. In the questions above as real GDP increased there was no change in the price level as in graph (a) above. But as an economy approaches the full employment level of GDP usually the price level will begin to rise as the cost of resources rise as in graph (b) below. Assuming that there is an increase in the price level as the economy approaches full employment as in graph (b), What is the multiplier with changes in the price level?
   
   
   
   
   
   
10. Now, with these changes in the price level, what change in government spending is needed to achieve full employment?