### Aggregate Demand and Government Fiscal Policy#### Scenario DescriptionSuppose the consumption function is defined as:\[ C = \$700\ \text{billion} + 0.8Y \]where:- $ C $ is consumption- $ Y $ is the aggregate income The government aims to stimulate the economy. We need to calculate the initial shift in aggregate demand (AD) at current prices before considering multiplier effects. Follow the instructions to determine these shifts.#### Instructions: Enter your responses as whole numbers. 1. **For a $30 billion increase in government purchases:**\[ \boxed{30}\ \text{billion} \]2. **For a $30 billion tax cut:**\[ \boxed{24}\ \text{billion} \]3. **For a $30 billion increase in income transfers:**\[ \boxed{24}\ \text{billion} \]#### Multiplier EffectsNext, we determine the cumulative AD shift after considering multiplier effects for each type of fiscal policy.4. **What will the cumulative AD shift (after multiplier effects) be for:** a. **Increased government spending?** \[ \boxed{}\ \text{billion} \] b. **Tax cut?** \[ \boxed{}\ \text{billion} \] c. **Increased transfers?** \[ \boxed{}\ \text{billion} \]### Explanation of Multiplier EffectsThe total increase in aggregate demand will be larger than the initial shift because of the multiplier effect. The multiplier effect refers to the proportional amount of increase, or decrease, in final income that results from an injection, or withdrawal, of spending.---*Note: Please fill in the boxes with the correct calculations for the total cumulative AD shift, considering the given consumption function and the multiplier effect.*

Aggregate demand refers to the total demand for commodities and services made by all the economic…

Suppose the consumption function is C-$700 billion+08Y and the government wants to stimulate the economy. By how much will aggregate demand at current prices shift initially before multiplier effects) with Instructions: Enter your responses as a whole number a a $30 billion increase in government purchases? 30 billion b. a $30 billion tax cut? 24 billion c. a $30 billion increase in income transfers? 24 billion What will the cumulative AD shift (after multiplier effects) be for d. the increased government spending? billion e. the tax cut? billion f the increased transfers? billion

Suppose the consumption function is C-$700 billion+08Y and the government wants to stimulate the economy. By how much will aggregate demand at current prices shift initially before multiplier effects) with Instructions: Enter your responses as a whole number a a $30 billion increase in government purchases? 30 billion b. a $30 billion tax cut? 24 billion c. a $30 billion increase in income transfers? 24 billion What will the cumulative AD shift (after multiplier effects) be for d. the increased government spending? billion e. the tax cut? billion f the increased transfers? billion

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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where is the 11 comming from?