During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $5 per
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<u>Solution and Explanation:</u>
A 30bn$ tax cut will mean that there is 35bn$ of added take home pay available to all the wage earners.
This would simply mean that 14% of 30bn $ = 4.2bn$ would be added to the national savings and the rest 86% of 35bn$ = 25.8bn$ would be additional spending. This would inturn generate 25.8bn$ of added income (since someone's expenditure is someone else's income);
So out of this 25.8bn$ 14% will be saved and 86% will be respent; and this chain will continue;
So total added consumption expenditure due to the 30bn $ tax cut =
(Rounded off)
This is the total additional spending (consumption in an economy because of the stimulus provided by the tax cut of 30bn$);
The total impact on the economy over long run = 184bn$ of additional expenditure