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Monster-Truck Monday, January 27Turnt-up Tuesday, January 28
●● Talk to your neighbor about the multiplier effect. Ask them what
happens to the money that you spend at McDonald’s and Target.●
●
●
Unit 3, Quiz #2 Review
What about taxing?•The multiplier effect also applies when the government cuts or increases taxes.•But, changing taxes has less of an impact than government spending. Why?
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What about taxing?Expansionary Policy (Cutting Taxes)
•Assume the MPC is .75 so the multiplier is 4.•If the government cuts taxes by $4 million how much will consumer spending increase?•NOT 16 Million!! •When they get the tax cut, consumers will save $1 million and spend $3 million.•The $3 million is the amount magnified in the economy.
•$3 x 4 = $12 Million increase in consumer spending.
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Calculating the Tax MultiplierIf the MPC is .75, what is the tax multiplier?
•If the spending multiplier is 4, then the tax multiplier is only 3.
•But remember that an increase in taxes decreases GDP so the tax multiplier is negative.
Total change in GDP
= Tax Multiplier x Initial Changein Taxes
Simple TaxMultiplier
ORMPC x MPCMPS
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Pric
e le
vel
rGDP (billions)
Cutting Tax Practice
1. What two options does the government have?
2. How much should they increase government spending?
3. How much should they cut taxes? AD1 AD2 -$20 B
Congress uses discretionary fiscal policy to the manipulate the following economy. (MPC = .5)
P1
$80 $100FE
ASLRAS
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$10 B
West-End Wednesday, January 29Thrift-Store Thursday, January 30
Warm up: Please get out your study guide and talk to your neighbor about things you still have questions about.
★ Unit 3 personal progress check posted on College Board site is due this Friday, Jan. 31 by 8:00 a.m.
★ I will be here after school today and Thursday for tutoring
Fun Set 3.7
2008 Practice FRQ
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2008 Practice FRQ
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Hybrid FRQ
14
1995 Exam
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15
1995 Exam
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2008 Audit Exam
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2008 Audit Exam
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2012 Audit Exam
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2012 Audit Exam
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2012 Audit Exam
22. Which of the following are the most likely short-run effects of an increase in government expenditures?
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2008 Audit Exam
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22
2008 Audit Exam
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2008 Audit Exam
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2012 Audit Exam
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2012 Audit Exam
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2012 Audit Exam
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Pric
e le
vel
Real GDP (billions)
Draw and Practice
AD2AD1
P1
$50FE $100
AS1. What type of gap?2. Contractionary or
Expansionary needed?3. What are two options
to fix the gap?4. How much needed to
close gap?
LRAS
Congress uses discretionary fiscal policy to the manipulate the following economy. (MPC = .9)
-$5 Billion28Copyright
ACDC Leadership 2018
Pric
e le
vel
Real GDP (billions)
Draw and Practice
1. What type of gap?2. Contractionary or
Expansionary needed?3. What are two options to
fix the gap?4. How much initial
government spending is needed to close gap? AD1 AD2
+$40 Billion
Congress uses discretionary fiscal policy to the manipulate the following economy. (MPC = .8)
P1
$800Y1 $1000YF
ASLRAS
29Copyright ACDC Leadership 2018
