1. Explain what is meant by:
a. government spending.
b. net taxes.
c. disposable income.

2. What is the new consumption function, including taxes?

3. How is the new aggregate expenditure function, including government spending?

4. How does including the government affect the equilibrium condition?

5. Explain how the equilibrium output is determined:
a. from Table 9.1 (i.e. from the aggregate expenditure schedule).
b. from Figure 9.2 (i.e. by the graphical approach)
c. from the "leakages = injections" approach (i.e. the algebraic approach, with an alternative
equilibrium condition).

7. Explain in detail why an increase in government spending has a "multiplier effect" on equilibrium output.

8. Explain in detail why an reduction in net taxes has a multiplier effect" on equilibrium output.

9. Explain why the "multiplier effect" of a reduction in taxes is smaller than the "multiplier effect" of an increase in government spending.

10. Explain why the "balanced budget multiplier" is equal to one.

11. Ignore for now the short section on the "adding the international sector" (p. 180)

13. What is meant by: (a) the federal budget deficit? (b) the federal debt? Study Figure 9.4.

14. Explain why the size of the government budget deficit depends on the "state of the economy."

15. What is meant by: (a) automatic stabilizers? (b) fiscal drag? (c ) the full employment deficit?
(d) the structural deficit? (e) the cyclical deficit?

16. Compare the US government deficits and government debt with other countries.

Problem set: 1-4, 6-7, and 9-10. Answers to even-numbered problems are in the back of the book, and answers to all problems are on reserve in the Library.