This problem shows how to estimate the cumulative effectof a tax cut on a countrys
Chapter 9, Problem 43(choose chapter or problem)
This problem shows how to estimate the cumulative effectof a tax cut on a countrys economy. Suppose thegovernment proposes a tax cut totaling $100 million. Weassume that all the people who have extra money spend80% of it and save 20%. Thus, of the extra income generatedby the tax cut, $100(0.8) million = $80 millionis spent and becomes extra income to someone else.These people also spend 80% of their additional income,or $80(0.8) million, and so on. Calculate the total additionalspending created by such a tax cut.
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