FDNECON 04 · Fiscal Policy and Output Gaps
Conventions
Original source-based practice for FDNECON Quiz #2. Questions are independent: use only each item’s complete givens. Amounts and units are stated in every numerical case. Numeric written answers omit currency symbols and units; rates are entered as numerical percentages (5 means 5%). Round only the final result to two decimals unless instructed otherwise. The course money-market diagram treats supply as vertical and policy-determined, with downward-sloping demand and other determinants fixed. Numerical money-demand equations, finite/infinite spending chains, gap percentages and multiplier/tax formulas are fully stated hypothetical practice extensions, not claims about measured Philippine outcomes or guaranteed policy effects. Expenditure and income approaches remain separate; foreign-income boundary inconsistencies in the source are explained in the reviewer. No question requires an unprovided graphic or another item’s answer.
Questions
01Complete the signed output gap, in ₱ billion.
| Item | Value |
|---|---|
| Actual GDP | 3760 |
| Potential GDP | 4000 |
| Signed gap (actual−potential) | ? |
02Enter the signed gap as a percentage of potential.
Problem
Actual GDP=₱4,240bn, potential GDP=₱4,000bn. Define gap %=(actual−potential)/potential×100.
03Identify the fiscal-policy direction.
Problem
Government reduces its purchases and raises taxes to restrain demand when actual output exceeds potential.
04Enter the total of only the four shown rounds in pesos.
| Item | Value |
|---|---|
| Initial purchase | 1600 |
| Second round | 800 |
| Third round | 400 |
| Fourth round | 200 |
| Total of these four rounds | ? |
05Enter the multiplier under the supplied model.
Problem
Use the supplied simple spending formula k=1/(1−c). Marginal propensity to consume c=0.75. Assume no other leakages, price change or crowding out.
06Enter the total output increase in ₱ billion.
Problem
Spending multiplier k=4; initial extra government purchases ΔG=+₱40bn. No other effects occur. Find total output change, including the initial purchase.
07Enter the initial purchase increase required, in ₱ billion.
Problem
A hypothetical recessionary output shortfall is ₱200bn. The supplied spending multiplier is 4, potential output is fixed, and all other changes are zero. Calculate the initial ΔG needed to close the gap.
08Complete the direct net expenditure change in ₱ billion.
| Item | Value |
|---|---|
| Change in C | 0 |
| Change in I | -25 |
| Change in G | 80 |
| Change in NX | 0 |
| Direct net change in Y | ? |
09Name the investment offset described.
Problem
Public borrowing increases the demand for limited loanable funds, interest rates rise and private firms cancel some investment projects.
10Enter the output change in ₱ billion under the supplied tax model.
Problem
Use the supplied relation ΔY=[−c/(1−c)]ΔT. c=0.6 and a lump-sum tax cut is ₱40bn (ΔT=−40). No other effects occur.