Question

If we find that our economy is in a recession, which of the following could the Fiscal policy makers do to correct the situation?

Decrease the money supply
	Reduce government spending
	Increase taxes
	Reduce taxes

The marginal propensity to consume is typically:

equal to one.
	often negative.
	between zero and one.
	greater than one.

The income expenditure model predicts that if the marginal propensity to consume is 0.75 and the federal government increases spending by $100 billion, real GDP will increase by:

$100 billion.
	$300 billion.
	$400 billion.
	$750 billion

Answer 1

Q1
Answer
Option 4
reduce taxes
Fiscal policy is used to control the economy. It uses tax and government spending as tools to stabilize it.
The economy is in recession means needs to stimulate and it eliminate by using a expansionary fiscal policy. A expansinary fiscal policy uses increase govenment spending or decrease taxes or both.
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Q2
Answer
Option 3
0<MPC<1
A MPC is a potion of addition dollar of income spent and remaing is samed so the identicty is
MPC+MPS=1
MPC=1-MPS

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Q3
Answer
Multiplier =1/(1-MPC)
=1/(1-0.75)
=4
change in GDP =change in spending * multiplier
=100*4
=$400

Option 3