Suppose the consumption function is given as, C= $400 billion + 0.8Y, and the government wants to stimulate the economy. How much will AD at current prices (shift horizontally) before multiplier effects with:
a. a $50 billion increase in government spending?
b. a $50 billion tax cut?
c. a $50 billion increase in income transfers? Illustrate what will be the cumulative effects including the multiplier for each of the above three policy choices?
a. the $50 billion increase in government spending?
b. the $50 billion tax cut?
c. the $50 billion increase in income transfers.