Fiscal Policy:

a. Consider the case from where consumer wealth falls when the economy is at full employment. What is the appropriate fiscal policy to address this situation? What is the expected outcome?

b. Suppose the marginal propensity to consume is 0.5. If the government decreased spending on goods and services (G) by $100m, all else equal, how would that affect output? Briefly explain why (i.e., explain the multiplier effect).