1. What are the two major steps that the government t

1. What are the two major steps that the government takes to implement a fiscal policy?2. Suppose the consumption function is C = $600 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) witha) A $100 billion increase in government purchases?b) A $100 billion tax cut?c) A $100 billion increase in income transfers?What will the cumulative AD shift be ford) The increased G?e) The tax cut?f) The increased transfers?3. Suppose the government decides to increase taxes by $40 billion in order to increase Social Security by the same amount. How will this combined tax-transfer policy affect aggregated demand at current prices?4. If the marginal propensity to consume is 0.9 how large would each of the following need to be in order to restore full-employment equilibrium in Figure 11.3? a) A tax cut? b) A government spending increase? c) An increase in income transfers?
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