1. The G practiced expansionary fiscal policy by cutting taxes by $10 billion. The MPS for the economy was.10 If the current equilibrium was $300 billion.

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Presentation transcript:

1. The G practiced expansionary fiscal policy by cutting taxes by $10 billion. The MPS for the economy was.10 If the current equilibrium was $300 billion and the full output equilibrium was $400 billion: would the policy reach the goal of returning the economy to full output? Explain(with numbers) why or why not.

2. Assume there was high inflation and the government cut spending. Create a flow chart of events to show how the fiscal policy may not reach its goal of returning to equilibrium because of Investment. Then show on the AD/AS model.

3. Assume there was higher than normal unemployment and the government increased spending. Create a flow chart of events to show how the fiscal policy may not reach its goal of returning to equilibrium because of Nx. Then show on the AD/AS model.