Calculate net cumulative change in aggregate expenditure

Reference no: EM133203017 , Length: 4 Pages

Assignment:

1. If the Marginal Propensity to Consume (MPC) is .90, estimate the total (multiplied) effect of government purchases/spending of $100B in the economy in terms of its aggregate expenditure (Hint: Multiplier = 1 / 1 - MPC).

Calculate the net cumulative change in the aggregate expenditure if taxes were cut by $200 billion and MPC is estimated to be .75.

What if government expenditure was increased by $200 billion?

(Hint: Total change in expenditure = multiplier x new expenditure or spending injection)

2. Explain why a high level of government debt is bad for the economy?

3. Why automatic stabilizers help to smooth out the effects of cyclic boom and bust cycles on the economy?

Reference no: EM133203017

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