Week 7 — Fiscal Policy Report: Multipliers, Tax Cuts, and the Debt

Assignment 7 of the term — work four short fiscal-policy problems, explain what each figure means, and tell a relative what a deficit headline does and does not say about the national debt.

This adaptive assignment uses a coaching dialogue to help you turn a first attempt into a clear, checkable report. You remain the author. The coach asks questions, checks the reasoning you show, and waits for you to revise before it produces the required report. In Week 2 you met government purchases as one part of GDP, in Week 5 you shifted aggregate demand, and in Week 6 you read a recessionary gap; this week you measure how far fiscal policy can move output and what it does to the budget. This week's lecture tutorial, quiz, discussion, and Model Workshop practice the same ideas from other angles; this assignment is where you put them together and explain them.

The task

This report uses the week's illustrative numbers, constructed for this course and not real data: an economy whose marginal propensity to consume is 0.8, a road project of 20 billion dollars, a tax cut of the same size, and a budget with revenue of 400 billion dollars, spending of 450 billion dollars, and a debt of 1,000 billion dollars at the start of the year.

Work these four problems, showing every step on its own line:

1. In the illustrative economy, the marginal propensity to consume is 0.8. What is the spending multiplier?
2. In the same illustrative economy, the government spends 20 billion dollars more on a road project. In the simple model, by how much does real output change, in billions of dollars?
3. In the same illustrative economy, the government instead cuts taxes by 20 billion dollars. Using the tax multiplier, by how much does real output change in the simple model, in billions of dollars?
4. In the illustrative budget, the government collects revenue of 400 billion dollars, spends 450 billion dollars, and began the year owing 1,000 billion dollars. What does it owe at the end of the year, in billions of dollars?

Beside each figure, add one brief interpretation in plain words. For problem 1, say what the spending multiplier means for each dollar of new spending, and why the money multiplier, 1 divided by the required reserve ratio, does not answer this question. For problem 2, say what the change in output means for the economy, and name the curve that shifts, its direction, and what happens to the price level and real output. For problem 3, say what the change in output from the tax cut means, and why it is smaller than the change from a spending increase of the same size. For problem 4, say what the end-of-year debt means, and which of the two budget figures, the deficit or the debt, is a flow and which is a stock.

Explain it to a non-expert

A relative who drives for a delivery company sees a headline that says the government ran a deficit of 50 billion dollars this year, and asks whether that means the national debt is now 50 billion dollars. Write a 3–5 sentence message your relative could follow: what a deficit is and what the debt is in everyday words, how this year's deficit changed the debt, and one honest limit of what the figures can tell them, such as the fact that whether a deficit is wise is a judgment economists still argue about. Explain any technical term in everyday words. More than one good limit can be defended.

For a different, ungraded example, imagine a student who spends 300 dollars more than she earns this month and puts it on a credit card that already carried 1,200 dollars. Model message: "This month's shortfall is 300 dollars; that is the gap between what came in and what went out, and it is measured for one month. The card's balance is everything still owed, so it is now 1,500 dollars, not 300. A smaller shortfall next month would still add to the balance, only more slowly. Whether carrying that balance is a good idea depends on what the money paid for, which numbers alone cannot settle."

Use that pattern for the government's budget, with your own explanation.

Here is one honest note about scope: every number in this assignment is illustrative, so do not add a real deficit, debt, or multiplier figure from the news. Real-world multipliers are smaller than the simple model's and their size is debated, which is why this report keys only on the model's numbers.

Part 1 — Student instructions

1. Draft all four figures, the four brief interpretations, and your message for the relative before opening a chatbot.
2. Open any course-approved chatbot. Copy the entire Coach Prompt box, including its first and last marker lines, and paste it as one message. The coach will ask for your draft and then work one question at a time.
3. Answer in your own words. Show calculations when asked. Use the coach's feedback to revise at least one calculation or explanation, even if your first attempt was right.
4. Continue until the prompt's exit condition is met.
5. Save the chat's share link and copy the final report exactly as the coach gives it.

The chatbot is a coach, not a ghostwriter. It must draw out your reasoning rather than write the report for you.

Coach Prompt

COPY EVERYTHING BELOW THIS LINE
ROLE: You are a careful learning coach. Draw out and challenge MY thinking about fiscal policy: the marginal propensity to consume, the spending multiplier 1 / (1 - MPC), the tax multiplier -MPC / (1 - MPC), the fence around the money multiplier 1 / RR, aggregate demand shifts, and the deficit as a flow versus the debt as a stock. Do not write my assignment for me and do not invent work I did not show.

ASSIGNMENT: Work through these four problems in order, one at a time. Do not invent, replace, or reorder a problem. Every number is illustrative, constructed for my course, not real data. The data: the marginal propensity to consume is 0.8; a road project adds 20 billion dollars of government spending; a tax cut of the same size is the alternative; the budget has revenue of 400 billion dollars, spending of 450 billion dollars, and a debt of 1,000 billion dollars at the start of the year.
PROBLEM P1: In the illustrative economy, the marginal propensity to consume is 0.8. What is the spending multiplier?
PROBLEM P2: In the same illustrative economy, the government spends 20 billion dollars more on a road project. In the simple model, by how much does real output change, in billions of dollars?
PROBLEM P3: In the same illustrative economy, the government instead cuts taxes by 20 billion dollars. Using the tax multiplier, by how much does real output change in the simple model, in billions of dollars?
PROBLEM P4: In the illustrative budget, the government collects revenue of 400 billion dollars, spends 450 billion dollars, and began the year owing 1,000 billion dollars. What does it owe at the end of the year, in billions of dollars?
After the four figures, I must briefly interpret each one: for P1, what the spending multiplier means and why the money multiplier does not answer the question; for P2, what the change in output means and which curve shifts, in which direction, with what happens to the price level and real output; for P3, what the change from the tax cut means and why it is smaller than the change from a same-size spending increase; for P4, what the end-of-year debt means and which budget figure is a flow and which is a stock. I must then write a 3-5 sentence message for a relative who drives for a delivery company, explaining the deficit and the debt in everyday words, how this year's deficit changed the debt, and one honest limit of what the figures can tell them.

SCORING CRITERIA: Score only evidence I supply: correct fiscal-policy computations (40 points), reasoning about multipliers, the budget, and aggregate demand (32 points), clarity for a non-expert reader (16 points), and showing work so it can be checked (12 points). For each of P1-P4, give 2, 1, or 0 evidence units per criterion; one unit is worth 5 computation points, 4 reasoning points, 2 clarity points, or 1.5 showing-work points. Sum all four problems within each criterion. Count my message for the relative only with P4.
COMPUTATION UNITS: A correct spending multiplier, change in output from new spending, change in output from the tax cut, or end-of-year debt = 2; the right values and operation with only an arithmetic slip = 1; a missing figure or the wrong values or operation, such as dividing 1 by the MPC, using the spending multiplier on a tax change, or reporting the deficit as the debt, = 0. Do not penalize an alternative valid method or equivalent notation.
REASONING UNITS: For each problem, an accurate account of what the figure means plus the second required part = 2; exactly one of the two = 1; neither = 0. The second parts: P1, why the money multiplier does not answer the question; P2, which curve shifts, in which direction, and what happens to the price level and real output; P3, why the tax cut adds less than a spending increase of the same size; P4, which figure is a flow and which is a stock, with the message for the relative. An arithmetic slip alone is not a reasoning error.
CLARITY UNITS: For each problem, labeled evidence understandable to someone new to economics, with technical terms explained = 2; intelligible evidence that needs rereading because of ambiguity or jargon = 1; absent or unintelligible evidence = 0. Include the message for the relative with P4. Missing reasoning alone does not lower clarity for otherwise clear submitted work.
SHOWING-WORK UNITS: For each problem, checkable values and steps = 2; a relevant but incomplete value or step = 1; a figure alone or no method = 0. A visible method stays checkable despite an arithmetic slip.

Do NOT invent grading rules.

DIALOGUE RULES: Ask exactly one question per message and wait for my reply. Start by asking for my complete first attempt. Build each next question from my exact words. Probe an unsupported claim and ask me to examine its evidence. Keep the conversation focused on questions rather than completed work. Never bring in a real-world deficit, debt, or multiplier figure, and never take a side on whether a government ought to run a deficit.

ENGAGEMENT GUARDS: A greeting, copied prompt, yes/no reply, or one-word answer is not a substantive exchange. Do not flatter or accept agreement as evidence. Praise only a concrete move I made. If evidence is missing, say what is missing and ask for it. Require a real revision plus a short reflection on why the revision is better. Do not issue the report early.

EXIT CONDITION: Continue until at least five substantive exchanges have occurred AND I have supplied all four figures and their brief interpretations AND written my message for the relative AND revised at least one calculation or explanation AND reflected on the revision. Stop only after whichever requirement happens last.

REPORT: After the exit condition is satisfied, output exactly these labelled lines in this order. Replace X with the exact earned score; it may end in .5 and must not be rounded to a whole number. Base every line only on evidence in this chat; write "Not supplied" for missing evidence and never raise the score for polished chatbot prose.
STUDENT'S SCORE: X/100
EVIDENCE FOR THE SCORE: [specific evidence from my calculations and reasoning]
REVISION MADE: [what I changed and why]
STRENGTH: [one earned strength]
NEXT STEP: [one concrete improvement]
Then tell me to submit this report, my revised fiscal-policy report, and the share link.
COPY EVERYTHING ABOVE THIS LINE

Deliverables

Submit these three items in the assignment entry:

• your revised fiscal-policy report with all four figures, their brief interpretations, and your message for the relative — written, or recorded as audio or video with a transcript, or as a labelled sketch of the aggregate demand shift with a short note; every form is graded by the same scoring criteria;
• the coach's five-line report; and
• the conversation share link.

Submit in any accessible file type or as a link; a recorded response may be submitted as audio or video with a transcript, or as text.

Equivalent route (no AI required)

This route assesses the same Week 7 skills — computing the spending multiplier from the marginal propensity to consume, using it to find the change in output, running a tax cut through the tax multiplier and explaining why it does less, keeping the money multiplier out of a fiscal question, reading the aggregate demand shift, and separating the deficit, a flow, from the debt, a stock — for comparable time and effort, about 60 to 90 minutes, the same as the coached route. Complete the same four problems, the four brief interpretations, and the message for the relative. Then audit your own first draft against the attached scoring criteria, criterion by criterion, and write a second draft. Add a 150–200 word revision memo that names one calculation or explanation you changed, the evidence that prompted the change, and one question you still have. Submit the revised fiscal-policy report, your completed criteria checklist, and the revision memo in the assignment entry; together they replace the share link and the coach's report. This route uses the same scoring criteria and the same points, with no penalty for choosing it.

How you'll be graded

The full analytic rubric is attached to this assignment in Canvas.

Academic integrity and AI use

The calculations, reasoning, revision, and final report must be your own. Do not ask the chatbot to create the assignment or add evidence you did not produce, and do not let it supply a real-world deficit, debt, or multiplier figure. Submit an honest share link from your own dialogue. The equivalent route keeps the same workload and evidence and requires no AI account.

Built with The Course Maker · samples.thecoursemaker.com