Fiscal Policy and the Multiplier Practice (1 of 2)- Macro Topic 3.8

The video tutorial explains the concept of a recessionary gap and how government spending can be adjusted to close this gap using the spending multiplier. It covers the calculation of the spending multiplier based on the marginal propensity to save and demonstrates how different values of marginal propensity to consume affect the required government spending. The tutorial emphasizes the logic behind spending adjustments and the impact of consumer behavior on economic policy.

What is a recessionary gap?

• When current output is less than desired output

• When current output exceeds desired output

• When unemployment is at its lowest

• When inflation is higher than expected

If the marginal propensity to consume is 0.5, what is the spending multiplier?

• 1

• 2

• 3

• 4

How much government spending is needed to close a 40 billion dollar gap if the spending multiplier is 2?

• 40 billion dollars

• 10 billion dollars

• 20 billion dollars

• 30 billion dollars

What is the spending multiplier when the marginal propensity to consume is 0.8?

• 5

• 3

• 2

• 4

Why does a higher marginal propensity to consume reduce the amount of government spending needed to close the gap?

• Because people save more

• Because people spend more

• Because the gap is smaller

• Because the government spends less