Suppose the consumption function is C = $500 billion + 0.9Y 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 rounded to the nearest whole number.
(a) A $50 billion increase in government purchases? $ _ billion
(b) A $50 billion tax cut? $ _ billion
(c) A $50 billion increase in income transfers? $ _ billion
What will the cumulative AD shift be for
(d) The increased government spending? $ billion
(e) The tax cut? $ _ billion
(f) The increased transfers? $ ___ billion

Question

19-12-2022
Business

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Suppose the consumption function is C = $500 billion + 0.9Y 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 rounded to the nearest whole number.
(a) A $50 billion increase in government purchases? $ _ billion
(b) A $50 billion tax cut? $ _ billion
(c) A $50 billion increase in income transfers? $ _ billion
What will the cumulative AD shift be for
(d) The increased government spending? $ billion
(e) The tax cut? $ _ billion
(f) The increased transfers? $ ___ billion

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akankshasharma92 akankshasharma92 · Answer 1 · 2022-12-22T07:31:47+01:00

The government wants to boost the economy,let's say the consumption function is C = $500 billion + 0.9Y. the first change in aggregate demand at present prices with (a) 50 billion, (b) 45 billion, (c) 45 billion, (d) 500 billion, (e) 450 billion, (f) 450 billion.

According to the traditional consumption function, increases in income and consumer spending are entirely correlated. If this were the case, aggregate savings ought to rise proportionately as the GDP does over time. The goal is to establish a mathematical link between consumer spending and disposable income, but only at the aggregate level. One of the pillars of Keynesian macroeconomic theory is the stability of the consumption function, which is based in part on Keynes' Psychological Law of Consumption and is particularly striking when compared to the volatility of investment. The majority of post-Keynesians acknowledge that because spending habits vary as income increases, the consumption function is not long-term stable.

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