Suppose the government proposes a tax cut totaling $200 million. we assume that all the people with extra money to spend would spend 75% of it and save 25%. thus, of the extra income generated by the tax cut, $200(0.75) million = $150 million would be spent and so would become extra income for someone else. assume that this pattern continues is, assume that these people with the extra income also spend 75% of that additional income, i. e. $150(0.75) million, and so on. calculate the total additional spending created by the tax cut.