(TCOs E and F) Answer Parts A, B, and C completely.
(Part A) Evaluate the fundamental arguments between Keynesians and
Monetarists concerning the level of government involvement in our
economy to minimize the impact and stabilize the different stages of the
(Part B) Any change in the economy’s total expenditures would be
expected to translate into a change in GDP that was larger than the
initial change in spending. This phenomenon is known as the multiplier effect. Explain how the multiplier effect works.
(Part C) You are told that 90 cents out of every extra dollar
pumped into the economy goes toward consumption (as opposed to saving).
Estimate the GDP impact of a positive change in government spending that
equals $8 billion.