Fiscal Policy Assignment 2: The Multiplier

Ch. 12


1.  In a recessionary gap, how would each tool of fiscal policy be appropriately used:


Income taxes (t):


Government spending (gs):




2.  Which tool of fiscal policy, t or gs, is more "powerful"?  In essence, will a $1 change to t or a $1 change to gs have a more profound impact on AD?  Explain your answer.




Ch. 9
Return to Ch. 9 (which was not assigned).  Carefully read  the section on the multiplier starting on page 164).


1.  What is the  formula for the government spending multiplier?


2.  What is the relationship between the MPC and the multiplier?


3.  the MPS and the multiplier?






WASH YOUR CARS!  SALT IS THE ENEMY!