GRADE 12 ECONOMICS
SBA Assignment 1
Keynesian economics, the multiplier and fiscal policy
[LO 1 AS 1 AS 2 AS 3]
DUE: 9 February 2015 50 Marks
Familiarise yourself with the excel spreadsheet and chart that you have downloaded from the intranet and then answer the questions that follow:
[NB: only change and adjust figures in cells that are light purple!]
ACTIVITY SHEET 1
1.1 / Clearly define the following terms:1.1.1. Marginal propensity to consume
1.1.2. Investment expenditure
1.1.3. Autonomous spending
1.1.4. Induced spending
1.1.5. Keynesian Multiplier / (5 x 2)
1.2 / Using ACTIVITY SHEET 1; input the required information and answer the following questions.
INFORMATION TO INPUT:
· Injection into the economy: 5000
· Marginal propensity to consume: 0.4
1.2.1. Calculate and input the mps
1.2.2. What is the formula for calculating the Multiplier?
1.2.3. Write down the Excel formula you would input into block K3 in order to calculate the Multiplier
1.2.4. What is the Multiplier in this scenario?
1.2.5. Write down the Excel formula you would use to calculate the “sum total for the economy as a whole” in cell M3 / (5 x 2)
1.3 / Write a short explanation to explain what each one of the three blocks highlighted in yellow indicates and what the numbers represent. / (3 x 2)
ACTIVITY SHEET 2 AND CHART 1
INFORMATION TO INPUT:
· Autonomous consumption spending: 100
· Investment spending: 300
· In cell H4 enter the mpc: 0.6
· In cell I4 calculate and enter the mps
· In cell J4 calculate and enter the multiplier
2.1.1 Explain how the figures in the “induced consumption expenditure” column are derived.
2.1.2 What is the economics formula that is used to calculate the total consumption expenditure?
2.1.3 What is the economics formula that is used to calculate the aggregate expenditure?
2.1.4 Use CHART 1 to determine the total autonomous expenditure in this economy.
2.1.5 Use CHART 1 to determine the equilibrium level of income in this economy. / (5 x 2)
2.2 / Assume that there is an injection of 100 into this economy (additional investment spending).
2.2.1 What is the new level of autonomous expenditure?
2.2.2 Calculate the new equilibrium level of income. (Show your working)
2.2.3 Calculate the change in equilibrium income from question 2.1 above. (Show your working) / (3 x 2)
2.3 / 2.3.1 What would need to happen in an economy in order to increase the size and effect of the Keynesian multiplier?
2.3.2 Explain what practical steps or policies a government could take in order to increase size and effect of the Keynesian multiplier? / (2)
(6)
TOTAL: / [50]
GRADE 12 ECONOMICS
SBA Assignment 1 – Answer Sheet
Name: ______Total: ______/ 50
ACTIVITY SHEET 1
1.1 / .1.1 Marginal propensity to consume: / 21.1.2 Investment expenditure: / 2
1.1.3 Autonomous spending: / 2
1.1.4 Induced spending: / 2
1.1.5 Keynesian Multiplier: / 2
1.2 / 1.2.1 mps: / 2
1.2.2 Multiplier formula: / 2
1.2.3 Excel formula: / 2
1.2.4 Multiplier: / 2
1.2.5 Excel formula: / 2
1.3 / Injections made: / 2
Consumption spending: / 2
Savings: / 2
TOTAL: / [26]
ACTIVITY SHEET 2 AND CHART 1
2.1.2 Total consumption expenditure: / 2
2.1.3 Aggregate expenditure: / 2
2.1.4 Total autonomous expenditure: / 2
2.1.6 Equilibrium level of income: / 2
2.2 / 2.2.1 New level of autonomous expenditure: / 2
2.2.2 New equilibrium level of income: / 2
2.2.3 Change in equilibrium income / 2
2.3 / 2.3.1 Size and effect of the Keynesian multiplier: / 2
2.3.2 Government policies to change multiplier: / 6
TOTAL: / [24]