Suppose the Average Wage Earner Saves 15% of Her Take-Home

question 31

Short Answer

Suppose the average wage earner saves 15% of her take-home pay and spends the other 85%. Estimate the impact that a proposed $25 billion tax cut will have on the economy over the long run due to the additional spending generated. Round the answer to the nearest billion dollars.
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$ __________ billion

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Definitions:

Incremental Cash Flow

The additional cash flow a company receives from undertaking a new project, after accounting for the expenses involved in the project.

Variable Costs

Costs that change in proportion to the level of production or sales activities, such as materials and labor.

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance premiums.

Research And Development

Research and development (R&D) refer to the activities companies undertake to innovate and introduce new products and services.