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# Suppose the consumption function is C 5 $500 billion 1 0.9Y and the government wants to stimulate the economy.

2. Suppose the consumption function isC 5 $500 billion 1 0.9Yand the government wants to stimulate the economy. By how much will aggregate demand atcurrent prices shift initially (before multiplier effects) with(a) A $50 billion increase in government purchases?(b) A $50 billion tax cut?(c) A $50 billion increase in income transfers?What will the cumulative AD shift be for(d) The increased G?(e) The tax cut?( f ) The increased transfers?

Suppose the consumption function isC = $500 billion + 0.9Yand the government wants to stimulate the economy. By how much will aggregate demand atcurrent prices shift initially (before multiplier...