Suppose the consumption function is C=$800 billion + 0.8 Y 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 $100 billion increase in government purchases? $ billion b. a $100 billion tax cut? $ billion c. a $100 billion increase in income transfers? $ billion

Suppose the consumption function is C=$800 billion + 0.8 Y 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 $100 billion increase in government purchases? $ billion b. a $100 billion tax cut? $ billion c. a $100 billion increase in income 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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Question

Suppose the consumption function is
C=$800 billion + 0.8 Y
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 $100 billion increase in government purchases?
$
billion
b. a $100 billion tax cut?
billion
c. a $100 billion increase in income transfers?
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

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Step 1: Define aggregate demand

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Step 2: Initial effect of changes in govt spending:

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Step 3: Initial effect of changes in tax cut:

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Step 4: Initial effect of changes in transfers:

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Step 5: Final effect of changes in govt spending:

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Step 6: Final effect of changes in tax cut:

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Step 7: Final effect of changes in transfers:

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