Econ exam 3
The basic equation of national income accounting is GDP = C + I + G + X - IM. When the government uses fiscal policy to make changes to taxes and transfers, this policy primarily affects:
C
Currency in circulation is cash: I. held by the public. II. in the vaults of commercial banks. III. in the vault of the Federal Reserve.
I only
Explain how government borrowing could crowd out private investment spending. When would it not?
If government spends more than it takes in through taxes, it runs a budget deficit. This deficit means that it must be borrowing. If the government is borrowing, it is thus competing against private borrowing in the market for loanable funds. If the economy is at potential output, this scenario will mean that government's competing with private borrowing with increase the demand curve for loanable funds, driving up the interest rate. The size of the pool of loanable funds won't increase, thus as government takes some of it, the share going to private parties MUST shrink. If the economy was far below full output, we would have some unemployed resources and workers. Government borrowing used for expansionary policy would get some of those unemployed resources and workers back to work, raising incomes. As incomes increase, the size of the pool of loanable funds would increase (10% of $1000 is larger than 10% of $900, for example and supposing 10% of income were always saved), which means the supply curve of loanable funds would also shift right. As the demand and supply curves for loanable funds shift right, the interest rate need not rise (no crowing out of private investment) but the total size of the market would increase.
Discretionary fiscal policy
It involves policy makers making decisions on taxes, spending, and transfers directly
M2
M1 + savings deposits and time deposits (CDs) + money market funds
taxes and transfer payment multiplier=
MPC/1-MPC *for taxes= ΔY=MPC/1-MPC x Δ(-T) *transfer payments= ΔY= MPC/1-MPC x ΔTR
Which factor is a government transfer?
Social Security payments to retired auto workers
Suppose the government increases taxes by more than is necessary to close an inflationary gap. What is the MOST likely result?
The economy will move into a recession.
if the equilibrium of SRAS and AD lies to the left of the LRAS
The government should expand aggregate demand by cutting taxes to close the recessionary gap. *it has a recessionary gap *should use expansionary fiscal policy to shift the aggregate demand curve to the right
M1
The narrowest definition of the money supply. It includes currency and checkable deposits and travelers checks *these are the most liquid items *travelers checks aren't commonly used/ accepted anymore (they allowed for a safe way to pay when traveling vs carrying money)
The multiplier effect of an increase in transfer payments is smaller than that of an equal increase in government purchases of goods and services because some of the transfer payment is likely to be saved.
True
The size of the multiplier increases as the size of the marginal propensity to consume increases
True
Which asset is the MOST liquid?
a $50 bill
An example of a double coincidence of wants is:
a car mechanic who wants a TV finding an owner of an electronics store who wants a car repaired.
a leftward shift from point C to A
a decrease in investment spending following pessimistic GDP forecasts.
Potential output would NOT be increased by:
a decrease in the aggregate price level.
Commodity money is:
a good used as a medium of exchange that has other uses.
the interest rate effect of a change in the aggregate price level occurs when:
a higher price level decreases the purchasing power of money, resulting in an increase in the interest rate
commodity-backed money is:
a medium of exchange with no intrinsic value.
the wealth effect suggests:
a negative relationship between the price level and consumption spending
store of value
a way of transferring purchasing power from the present to the future *precious metals, stocks, anything of value like paintings, collector cars, etc. *when would money not be a store of value?- during inflation, people will rush to hold other assets that store value instead (gold)
currency
actual bills/coins in circulation (about 1.7 trillion in circulation) *about 60% of the US currency is held by foreigners who distrust their own currency or just use USD
if the economy is operating to the right of the LRAS curve and on the rightwards tip of the SRAS..
actual output is more than potential output
The long-run aggregate supply curve is vertical because in the long run:
all prices are flexible
medium of exchange
an asset we trade for goods and services *it acts as an intermediary to help us avoid the limitations of the barter *cigarettes can act as a medium of exchange *the good must be liquid- easily convertible into goods and services
Automatic stabilizers act like:
automatic expansionary fiscal policy when the economy is in a recession.
Fiscal policies that require no government action but that are expansionary when the economy contracts and contractionary when the economy expands are known as:
automatic stabilizers.
An economy that lacks a medium of exchange must use a(n) _____ system
barter
the value of the marginal propensity to consume is:
between 0 and 1
The marginal propensity to consume is typically:
between zero and one.
the _____ the _____, the _____ the multiplier.
bigger; marginal propensity to consume; bigger
a movement along the aggregate demand curve is caused by a(n):
change in the aggregate price level
the LRAS is vertical because...
changes in the aggregate price level have no effect on aggregate output in the long run
Among the liabilities of banks are:
customers' deposits
if the marginal propensity to save increases, the multiplier will:
decrease
A $70 million decrease in investment spending will cause real GDP to:
decrease by more than $70 million.
Suppose that the economy is in a recessionary gap. To move equilibrium aggregate output closer to the level of potential output, the BEST fiscal policy option is to:
decrease taxes.
If the price level falls by 10%, the purchasing power of $10,000 will:
decrease to $9,000.
suppose that a financial crisis decreases investment spending by $100 billion and the marginal propensity to consume is 0.8. Assuming no taxes and no trade, real GDP will _____ by _____.
decrease; $500 billion *Use the formula for the change in real GDP. ΔY = 1/1-MPC x Δ AAS * 1/(1-.8) * 100 billion = 500 billion decrease
the interest rate effect leads to a downward-sloping aggregate demand curve because a higher price level causes consumption to _____ and investment to _____.
decrease; decrease
If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should _____ transfer payments by _____ $40 billion.
decrease; more than
bank runs
depositors suddenly all wanted their deposits back *banks couldn't come up with depositors money very quickly without selling the loans the bank gave to another firm at a deep discount *can lead to recessions
The demand curve for loanable funds slopes:
downward because quantity demanded is lower when the price to borrow money is higher.
if the economy experienced a positive AD shock the
economy will self correct *may take a decade to occur *what could the government do to speed it up? if could shift AD right using policy, it appears to be at this moment using this model but there could be unintended and negative consequences if we use the wrong government policy
A change in the aggregate price level is a shift of the aggregate demand curve.
false
A government program that puts millions of unemployed Americans to work building bridges, roads, and parks would be considered an automatic stabilizer.
false
Aggregate supply involves intermediate goods and services along with final goods and services.
false
Increased consumption in the present does not mean decreased consumption in the future.
false
Money is a perfect store of value.
false
Money is unique because it is the only asset that can be used as a store of value.
false
Money is whatever the government decrees is money.
false
t/f: a $200 million increase in investment spending will increase real GDP by exactly $200 million
false
t/f: because of the multiplier effect, an increase in government spending of $200 billion will increase aggregate output by less than that amount.
false
Money that some authority, generally a government, has ordered to be accepted as a medium of exchange is called _____ money.
fiat
government can influence AD through
fiscal and monetary policy *cannot easily affect AS through policy
in the long run, nominal wages are:
flexible, because contracts and informal agreements are renegotiated in the long run
The need for a double coincidence of wants is necessary:
for barter exchanges.
are wages and salaries flexible or inflexible in relation to the SRAS curve ?
generally inflexible upwards or downwards in the short run *wages/salaries are about 75% of all businesses costs *firms are slow to increase wages and hesitant to cut them (bad for morale, labor contracts often last years)
Social insurance programs are:
government programs intended to protect families against economic hardships.
Discretionary fiscal policy refers to changes in:
government spending or taxes to close a recessionary or inflationary gap.
fiat money (current)
has value because government says so and everyone else will value it if you try to buy something with it (no intrinsic value just paper and cloth) *allows use of monetary policy to affect economy *runs the risk of government running the presses to pay the bills, causing hyperinflation
Government borrowing will not crowd out private investment spending if unemployment is _____ and the fiscal expansion causes a(n) _____ in incomes and a(n) _____ in saving at each interest rate.
high; increase; increase
If the economy is at full employment, expansionary fiscal policy is most likely to lead to:
higher inflation rates.
If the economy is at full employment, expansionary fiscal policy is most likely to lead to:
higher inflation rates.
positive aggregate demand shock leads to
higher prices and higher employment (higher output) *we met our goal of economic growth and are employing more workers *we can't definitively say we have high or low employment compared to the natural rate
the short-run aggregate supply curve is positively sloped because:
higher prices lead to higher profit and higher output
if the economy is operating below LRAS and on the left side tip of the SRAS (F) potential output is _____ than actual output and unemployment is _____.
higher; high
the short-run aggregate supply curve slopes upward because a _____ aggregate price level leads to _____.
higher; higher output, since most production costs are fixed in the short run *this implies higher profits for firms temporarily (in the short run)
when aggregate demand shifts in the short-run, what can you say with respect to our economic goals of price stability and economic growth? are we accomplishing both of them?
if AD increases, price level and output increase, we accomplished our growth objective but not price stability. if AD decreases, price level and output decrease, we dislike decreasing output, but falling prices may seem like a positive since a nominal amount of money will now buy more goods, but AD decreasing means less need for production at firms, more unemployment *deflation occurs, don't achieve price stability
the AD curve will shift to the left:
if there is a decrease in household wealth
movement along the SRAS curve
illustrated by a change in the price level from P1 to P2 and an increase in real GDP shown by movement from Q1 to Q2 *use Y for real GDP
stagflation occurred..
in the 1970s when OPEC decreased supply of oil and shifted SRAS left
For a marginal propensity to consume of 0.9, the multiplier effect of an increase of $100 billion in government purchases of goods and services is larger than the multiplier effect of a tax cut of $100 billion because:
in the first round of spending only $90 billion of the tax cut will be spent and $10 billion will be saved, while the entire $100 billion of government purchases will be spent.
For a marginal propensity to consume of 0.9, the multiplier effect of an increase of $100 billion in government purchases of goods and services is larger than the multiplier effect of a tax cut of $100 billion because:
in the first round of spending only $90 billion of the tax cut will be spent and $10 billion will be saved, while the entire $100 billion of government purchases will be spent.
the short run in macroeconomic analysis is a period:
in which many production costs can be taken as fixed
disposable income
income after taxes are paid and government transfers are received *Disposable income= income (wages, dividends, interest, and rents received) - taxes + government transfers
if the marginal propensity to consume increases, the multiplier will:
increase
A rise in labor productivity will MOST likely result in a(n):
increase in aggregate supply
a rightward shift from point A to point C
increase in the total quantity of consumer goods and services demanded
A decrease in energy prices will:
increase short-run aggregate supply
If the economy is at point E, nominal wages will _____, and the short-run aggregate supply curve will shift _____ until actual potential is _____ potential output.
increase; left; equal to
if the economy is at point E (on the SRAS but past LRAS), nominal wages will _____, and the short-run aggregate supply curve will shift _____ until actual potential is_____ potential output.
increase; left; equal to
Expansionary fiscal policy:
increases aggregate demand.
According to the wealth effect, when prices decrease, the purchasing power of assets _____ and consumer spending _____.
increases; increases
Expansionary fiscal policy includes:
increasing government expenditures.
Assume that marginal propensity to consume is 0.8 and potential output is $800 billion. If the actual real GDP is $700 billion, _____ government spending by _____ would bring the economy to potential output.
increasing; $20 billion
stagflation is a combination of _____ unemployment and _____ inflation
increasing; increasing
autonomous change in aggregate spending
is an initial change in the desired level of spending by firms, households, or government at a given level of real GDP
the multiplier process:
is limited, with the total change in real GDP dependent upon the size of the marginal propensity to consume
marginal propensity to consume (MPC)
is the increase in consumer spending when disposable income rises by $1 *MPC= Δ consumer spending/Δ disposable income (between 0 and 1)
marginal propensity to save (MPS)
is the increase in household savings when disposable income rises by $1 MPS= 1-MPC
full employment/utilization (potential output)
is the level of real GDP the economy would produce if all prices, including nominal wages, were fully flexible
multiplier
is the ratio of the total change in real GDP caused by an autonomous change in aggregate spending to the size of that autonomous change
Discretionary fiscal policy may fail to stabilize the economy or may even make the economy less stable because of:
lags in deciding on and implementing a policy change.
a rise in nominal wages shifts SRAS...
leftward
If the marginal propensity to consume is 0.75, the multiplier for taxes and transfer payments is:
less than 4. Use the formula MPC/(1-MPC) and plug in 0.75 for MPC.
A change in government transfers shifts the aggregate demand curve by _____ than a change in government spending for goods and services and has a _____ effect on real GDP.
less; smaller
negative aggregate demand shock leads to
lower price level and lower employment (lower output) *we are not employing as many worker hours now *falling prices mean a dollar will buy more goods, but again less worker hours used to produce output (layoffs)
commodity money (1st in money evolution)
made of precious metals often gold/silver, heavy, has intrinsic value (gold and silver used for decoration and industrial uses)
3 roles of money
medium of exchange, store of value, unit of account
which factor would shift the aggregate demand curve to the LEFT?
monetary policy that raises the interest rate
unit of account
money provides the terms in which prices are quoted and debts are recorded. it acts as a yardstick of sorts to measure economic transactions *what unit of account do we use?- USD
The store-of-value function of money is:
necessary but not distinctive.
Currency held in bank vaults and bank deposits held at the Federal Reserve are:
not part of the money supply
the aggregate supply curve shows the relationship between the aggregate price level and the aggregate:
output supplied
commodity-backed money (2nd in money evolution)
paper currency redeemable for a commodity (gold or silver), lighter but just as good as gold if actually redeemable *contrains the money supply to the amount of gold/silver government has (good and bad) since government can't alter money supply easily to inflate its way out debt but can't easily use monetary policy
Changes in _____ will not shift the aggregate demand curve.
price level
SRAS negative supply shock leads to
price level increases, output decreases *worker hours/employment decreases *this is really bad for workers because they bring home less money, their dollars buy less as prices increase (stagflation)
economic policy goals
price stability, low unemployment, and economic growth *increasing (or decreasing) real GDP will mean an increase in employment (decrease in employment)
the marginal propensity to consume equals the..
ratio of the change in consumer spending to the change in aggregate disposable income
SRAS positive supply shock leads to
real GDP increases, price level decreases *nominal dollars go further *employ more worker hours *more "stuff" for cheaper *we usually want price stability, but decreasing prices of final goods/services and increasing output due to SRAS shifting right is a good thing
a fall in nominal wages shifts SRAS...
rightward
When the economy expands, income tax receipts will:
rise, and sales tax revenues will rise
aggregate supply curve
shows the relationship between the aggregate price level (as measured by the GDP deflator) and the quantity of aggregate output supplied in the economy (as measured by real GDP) *we are talking about final goods and services with respect to aggregate supply
long-run aggregate supply curve
shows the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible
An example of an automatic stabilizer is:
tax receipts rising when GDP rises.
a shift of the LRAS means...
that there was a change that altered the natural rate of growth
stagflation
the combination of inflation and falling aggregate output
the point where the long-run aggregate supply curve intercepts the horizontal axis is:
the economy's potential output
The point where the long-run aggregate supply curve intercepts the horizontal axis is:
the economy's potential output.
Consumer spending will likely fall if:
the government raises tax rates.
aggregate demand curve shows...
the relationship between the price level and quantity of aggregate output demanded by households, firms, government and the rest of the world
Government's efforts to stabilize the business cycle through fiscal policy can destabilize the economy because of:
the time necessary to draw up a budget appropriate to the circumstances.
aggregate supply
the total supply of goods and services available to a particular market from producers
Government spending will NOT crowd out private spending if:
there is a recessionary gap.
if equilibrium of SRAS and AD lies to the right. of the LRAS
there is an inflationary gap and you should use a contractionary fiscal policy such as increasing taxes *from Y1-Yp
when there is a shift in SRAS curve, and the government can only shift the AD curve with policy, what should it do
there is no correct/ good answer as we fix one issue at the expense of another
barter
to barter you must have what I want and I have what you want. with money, you can pay me and I give you what you want. I later can use that money to buy what I want
A debit card is money because it gives access to a bank account
true
A debit card is money because it gives access to a bank account.
true
Commodity-backed money is a medium of exchange with no intrinsic value, whose ultimate value is guaranteed by a promise that it can be converted to valuable goods.
true
Consumer optimism can shift aggregate demand right.
true
Discretionary fiscal policy is the direct result of deliberate actions by policy makers rather than an automatic adjustment.
true
In the long run, the aggregate price level has no effect on the quantity of aggregate output supplied.
true
Money is the most liquid asset in the economy.
true
When Angela puts cash in her desk drawer to save for Christmas shopping, she is using money primarily as a store of value.
true
t/f: if the price level decreases by 20%, the purchasing power of $1,000 will increase to $1,200.
true
t/f: when the price level increases, people want to hold more money.
true
"Tuition at State University this year is $8,000." Which function of money does this statement best illustrate?
unit of account
The short-run aggregate supply curve slopes upward because of:
wage and price stickiness.
nominal wages are sticky because:
wages are slow to rise when there are labor shortages and slow to fall even when the level of unemployment is significant
short run aggregate supply curve slopes upwards because
we assume input costs to firms are fixed or highly inflexible, but output prices are flexible, implying that as price level increases, firms can increase profits in the short- run by increasing output
relationship between LRAS and PPF
when the PPF is producing at its full productive capacity, it is on the LRAS
multiplier is = to...
ΔY/ΔAAS= 1/1-MPC rearranged= ΔY= 1/1-MPC x ΔAAS *AAS- average annual salary
government spending multiplier=
ΔY/ΔG= 1/1-MPC rearranged= ΔY= 1/1-MPC x ΔG *Government spends money on goods and services, firms receive revenues, households receive income, they spend it, other households end up receiving increased income, etc. It works just like the Investment Multiplier of module 27 *Recall we assumed a fixed price level so the multiplier process is full strength. If the price level can change the multiplier is weakened and shrinks. We assume this away for simplicity
aggregate means
"total" or "combined"
The reserve requirement is 10% and Jack withdraws $5,000 travel money from his checkable deposit. Assume that banks do not hold any excess reserves and that the public holds no currency, only checkable bank deposits. By how much will the money supply contract as a result of the withdrawal?
$45,000
The reserve requirement is 20%. Leroy receives $1,000 as a graduation present and deposits the money in his checking account. The bank does NOT want to hold excess reserves. How much of the $1,000 deposit can the bank lend out?
$800
when AD shifts right and SRAS shifts left (effect on LRAS) inflationary gap *positive demand shock
*AD shifts right- Price level increases, output increases (initially while nominal wages are sticky) *eventually sticky prices (wages) become flexible and wages increase, production above Y1 (the potential output) causes unemployment below natural rate and overtime, pushing nominal wages up. this causes SRAS to shift left as wages lose their stickiness and increase *we end with higher price level and same output as initially in the long run *increased output was only temporary
in the expenditure equation GDP= C+I+G+X-IM, what components can the government affect and how?
*Government can affect G directly by what it decides to purchase (national defense, education mainly, and infrastructure) *Government indirectly affects C with transfer payments (social security, medicaid, medicare) and taxes. *Also I can be indirectly affected by tax policy (code) which can make investments more or less attractive for firms/consumers
potential pit falls in fiscal policy
*Government spending can crowd out private spending when the economy is at full employment, but not when in a recession. The idea is if the government spends $1, that's $1 out of your or my pocket we could instead have spent instead of the government. In a recession, private spending decreases and incomes decrease. Government helps offset these. *Government borrowing can crowd out private investment spending if the economy is at full employment but not if we are in recession *If consumers anticipate they will need to pay higher future taxes in order to pay off government debt, this could lower the effectiveness of expansionary policy as G increases, means consumers would offset by decreasing their spending *Time lags in implementing fiscal policy occur as a recession is 2 quarters (6 months) of declining GDP, it may take months for policy makers to decide on a response and pass it, implementing the spending may take months, and the spending takes time to have an effect. This may be 2 years! The recession may have already ended and the stimulus may hit at a bad time (full employment) and cause inflation. Economic factors may have totally changed
expansionary fiscal policy
*Increases AD through: Increases in government purchases of goods/services Decreasing taxes Increasing government transfer payments
contractionary fiscal policy
*Reduces AD through: Decreasing government purchases of goods/services Increasing taxes Decreasing government transfer payments
examples of AD shift left
*a decrease in consumer wealth is due to a plunge in stock prices *the Fed decreases the money supply
bank balance sheet
*assets- reserves and loans *liabilities and owner's equity- deposits and capital (owner's equity)
describe a policy measure the government can use to close an inflationary gap
*contractionary fiscal policies such as:increasing taxes or decreasing government spending (ex: public hospitals and the military) *AD shifts left
describe a policy measure the government can use to close a recessionary gap
*expansionary fiscal policies such as: decreasing taxes or increasing government spending (ex: public schools and roads) *AD shifts right
examples of AD shift right
*households and businesses have more optimistic expectations regarding future economic performance *there are higher levels of investment spending by businesses *the government cuts taxes for households and businesses
"positive" and "negative" meanings
*positive- shifts right *negative- shifts left
when AD shifts left and SRAS shifts right (effect on LRAS) recessionary gap *negative demand shock
*price level decreases, output decreases *initially sticky prices cause output to decrease and price level to decrease which is a recessionary gap *in long run due to falling wages SRAS shifts right and we move back to Y1 but PL is lower *painful recession occurs, output below potential *takes years to unfold
aggregate demand slopes downwards due to
*wealth effect- if the price level increases, your current wealth (all valuable assets you own) can buy less than it could before, people spend less *interest rate effect- if the price level increases, there is less money leftover to lend out (increasing interest rates). consumers will save more income (spend less) and firms spend less on investment projects, borrowing is now more expensive
Our tax code features automatic stabilizers. Taxes increase when the economy booms and decreases when it busts (recession). These are contractionary and expansionary, respectively, fiscal policies that are automatic
...
Since we assume the price level is fixed, if G increases, real GDP increases but not just by the amount G increased, but instead by the size of the multiplied effect using the government spending multiplier. This causes AD to shift right!
...
if the multiplier equals 4, then the marginal propensity to save must be equal to:
0.25
in a simple, closed economy (no government or foreign sector), disposable income decreases from $6,000 to $4,000. If consumption decreases from $4,500 to $3,000, the marginal propensity to consume is:
0.75 *consumer spending drops by 1500 and disposable income by 2000. 1500/2000 is 0.75
if disposable income increases by $5 billion and consumer spending increases by $4 billion, the marginal propensity to consume equals
0.8 $4 billion/$5 billion
what a bank does
1) borrow money (deposits) from depositors which can be withdrawn at any time 2) use the borrowed funds to create loans and mortgages for their customers who wish to borrow from the bank *borrows short, lends long since the deposits they receive could theoretically be withdrawn anytime or rapidly
shifters of the SRAS (non-price level determinants)
1) changes in commodity prices (GDP is only final goods and services) *ex: oil price increase causes SRAS to shift left as production costs increase for firms. at a given price level firms are unable to produce as high of output as before 2) changes in nominal wages- if wages decrease due to a large influx of immigrants SRAS shifts right *SRAS curve is drawn for a given wage rate, a change in wages = new SRAS curve!!! 3) changes in productivity- the computer is invented SRAS shifts right 4) changes in capital and land costs- steel price falls, machinery prices drop, SRAS shifts right 5) changes in taxes and subsidies- increase in taxes on businesses increase costs, SRAS shifts left or an increase in subsidies causes SRAS to shift right 6) changes in government regulation- new government regulation in healthcare increases costs, SRAS shifts left
non-price level determinants of aggregate demand
1) changes in expectations- when consumers and firms are more optimistic about the future in terms of income sales, aggregate demand increases and shifts right 2) changes in wealth- if household assets suddenly increase in value aggregate demand would shift right (perhaps stock market is booming) due to increases in purchasing power 3) size of the existing stock of physical capital (relates to #1)- if firms expect that their current production equipment or inventories are enough to cover expected demand for their goods/services, they won't invest and AD shifts left 4) fiscal policy- increased government spending, shifts AD right. increase in taxes and decrease in consumers discretionary income AD shifts left 5) monetary policy- increasing interest rates make it more expensive to borrow for firms and consumers AD shifts left. higher interest rate, less consumer spending, more saving AD shifts left *ex: a firm has an investment opportunity that will return 5% if interest rates are 3%, the investment opportunity is profitable (firm invests). if the cost of borrowing (interest rate) is 6%, don't invest
shifters of the LRAS
1) improvements in productivity and efficiency 2) an increase in the stock of capital and labor resources *rightward
Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. The government spending multiplier is:
1/(1-0.8) = 5
In a simple, closed economy (no government or foreign sector), disposable income increases from $2,000 to $3,000. If consumption increases from $1,500 to $2,100, the multiplier is:
2.5.
If the marginal propensity to consume is 0.8 and the government spending decreases by $50 million, then equilibrium GDP will decrease by:
250 million
if the marginal propensity to save is 0.3, the size of the multiplier is:
3.3