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

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24 February, 02:37

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

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Lewis Zimmerman · Answer 1

Answer: Spending Multiplier=1/1-0.9=10 a. the GDP will increase = 10x50=$500 billion Tax multiplier = 0.9/1-0.9=9 b. the GDP will increase = 50 x 9=$450billion c. nothing will happen. Transfer payment will not affect GDP.