Name:____________________________________________________

- Income choices
- What is disposable income? What are the two ways it can be allocated?
- What will a 2% increase in tax rates do to disposable income?
- If the MPS is .2, what is the MPC?
- If marginal propensity to consume is .64, what is marginal propensity to save?
- If Eduardo’s disposable income increases from $1,200 to $1,700 and his level of saving increases from minus $100 to a plus $100, his marginal propensity to save is:

- Fiscal Policy
- What is Fiscal Policy and what is it used for?
- There are 2 types of fiscal policy tools that we discussed. Name them both, and give a brief description of each. (Include any subcategories.)
- Briefly discuss the effects of time lags in relation to fiscal policy. (i.e. what are some practical difficulties?)

- There is a tax-cut that increases your Disposable Income by $3,400, which you intend to save $510.
- Calculate the MPC.
- Interpret this MPC. (What does it mean? Define MPC and describe in this context.)
- What is the resulting fiscal multiplier?
- Interpret the multiplier and describe the multiplier effect.
- Find the total change to the economy from this tax change.

- If the marginal propensity to consume is 0.8 in an economy, a $20 billion rise in Incomes will do what to GDP? (Tell if it will increase or decrease GDP, and by how much.)

- Suppose that the level of government spending increased by $100 billion where the marginal propensity to consume is 0.5. Aggregate expenditures must have increased by:

- The Government has a $.8 Trillion Growth target. What fiscal policy should they implement if MPS = .2?