1. Assume the MPC in an economy is 0.8 and the government increases government purchases of goods and services by $60 million. Also assume the absence of taxes.
international trade, and changes in the aggregate price level.
a. What is the value of the spending multiplier?
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b. By how much will real GDP change as a result of the increase in government
purchases?
c. What would happen to the size of the effect on real GDP if the MPC fell? Why?
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d. What is the MPS in this economy?
e. If the government increases tax revenue by $60 million, what effect will that have
on consumer spendng?

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