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Exercise 2 This exercise emphasizes the impact of various fiscal policies on total spending. Assume the economy can be described by the consumption function: C

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Exercise 2 This exercise emphasizes the impact of various fiscal policies on total spending. Assume the economy can be described by the consumption function: C = $300 billion + 0.9Y. 1. Calculate the cumulative change in total spending if the government increases purchases of goods and services by $100 million. 2. Calculate the cumulative change in total spending if the government reduces taxes by $100 million. 3. Calculate the cumulative change in total spending if the government increases transfer payments by $100 million. 4. The $100 million increase in government spending on goods and services had a (smaller, larger) impact on total spending than the $100 million increase in transfer payments because there is a savings (leakage, injection) out of transfer payments. 5. Calculate the cumulative change in total spending if the government increases purchases of goods and services by $100 million and at the same time increases taxes by $100 million. 6. The situation described in question 5 represents a expenditure

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