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Problem: 1: Suppose that a certain country has an MPC of 0.9 and a real GDP of $400 billion. If its investment spending decreases by $4billion, what will be its new level of real GDP? LO 11.5
Problem: 2: Assume that, without taxes, the consumption schedule of an economy is as follows.
GDP, Billions
Consumption, Billions
$100
$120
200
300
280
400
360
500
440
600
520
700
a. Graph this consumption schedule and determine the MPC.
b. Assume now that a lump-sum tax is imposed such that the government collects $10 billion in taxes at all levels of GDP. Graph the resulting consumption schedule and compare the MPC and the multiplier with those of the pretax consumption schedule.
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