How to solve my economics homework question?

Posted on 2014-12-06 06:17:00 in Economics by CATIE

Consider a hypothetical closed economy in which households spend $0.70 of each additional dollar they earn and save the remaining $0.30.
so MPC = .7
and the money multiplier is 3.333

Q 1. Suppose the government in this economy decides to decrease government purchases by $300 billion. The decrease in government purchases will lead to a decrease in income, generating an initial change in consumption equal to ___?

a) -500 billion
b) -105 billion
c) -1,000 billion
d) -90 billion
e) -210 billion

Q 2. This decreases income yet again, causing a second change in consumption equal to___?

a) -1,000 billion
b) -147 billion
c) -90 billion
d) -500 billion
e) -105 billion

Q 3. The total change in demand resulting from the initial change in government spending is___?

a) -2.1 trillion
b) -.6 trillion
c) -.7 trillion
d) -1 trillion

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