Suppose that the average wage earner saves 14% of her take-home pay and spends the other 86%. Also suppose that 86% of any amount spent is always re-spent (with 14% saved). Estimate the impact that a proposed $30 billion tax cut will have on the economy over the long run due to the additional spending generated. (Round your answer to the nearest integer.)

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 = [tex]30\left(0.86+0.86^{2}+0.86^{3}+\ldots\right)[/tex]

[tex]=30^{*}(0.86) /(1-0.86)=184.285 \mathrm{bn} \$[/tex] (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