1. Fill in the table below to show the effects of increases in government spending and taxes
on equilibrium income at various levels of MPC. Remember, the spending multiplier is 1/(1 -
b) and the tax multiplier is b/(1 - b).
MPC Spending Tax Increase Increase Change in
multiplier multiplier in G in T equilibrium
Y
0.33 1.49 -0.49 100 100 100
0.50 2 -1 150 150 150
0.60 2.5 -1.5 200 100 350
0.75 4 -3 250 200 400
2. Fill in the table below by calculating equilibrium income for each set of economic data.
Remember that AE = C + I + G + NX, C = a + bY - bT, and Y = [1/(1 - b) * (a + I + G +
NX)] - [b / (1 - b) * T].
a b I G NX T Equilibriu
m
Y
500 0.5 200 200 100 200 1800
500 0.5 200 250 100 200 1900
500 0.5 200 200 100 150 1850
500 0.8 200 200 100 200 4200
on equilibrium income at various levels of MPC. Remember, the spending multiplier is 1/(1 -
b) and the tax multiplier is b/(1 - b).
MPC Spending Tax Increase Increase Change in
multiplier multiplier in G in T equilibrium
Y
0.33 1.49 -0.49 100 100 100
0.50 2 -1 150 150 150
0.60 2.5 -1.5 200 100 350
0.75 4 -3 250 200 400
2. Fill in the table below by calculating equilibrium income for each set of economic data.
Remember that AE = C + I + G + NX, C = a + bY - bT, and Y = [1/(1 - b) * (a + I + G +
NX)] - [b / (1 - b) * T].
a b I G NX T Equilibriu
m
Y
500 0.5 200 200 100 200 1800
500 0.5 200 250 100 200 1900
500 0.5 200 200 100 150 1850
500 0.8 200 200 100 200 4200
