(?10045-degree line90TE with tax increase through a fixed tax8070Total ExpenditureTE with tax increase through a variable tax6050402010102030405060708090100REAL GDP (Billions of dollars)Suppose that the government also considered a variable tax hike and that the resulting consumption schedule would have also passed through oneblack point (plus symbols) on the left and one black point on the right on the first graph (though not necessarily the same points as the consumptionschedule resulting from the tax increase through a fixed tax).On the first graph, use two purple points (diamond symbol) to connect the two black points (plus symbols) representing the consumption schedulethat would result from a tax increase through a variable tax. (Hint: As before, the consumption schedule must pass through one point on the leftand one point on the right.)On the second graph, use the purple points (diamond symbols) to draw the total expenditure line that would result from a tax increase through avariable tax indicated on the top graph.True or False: The change in equilibrium output is smaller when the government implements the variable tax hike.TrueO FalseREAL EXPENDITURE (Billions of do llars) 6. Graphical treatment of taxes and fiscal policyThe main difference between variable taxes and fixed taxes is that unlike fixed taxes, variable taxes do not vary with GDPThe following graph shows the consumption schedule for an economy with a given level of taxes. Suppose the government implements a taxincrease through a fixed tax.Use two green points (triangle symbol) to connect the two black points (plus symbols) representing the consumption schedule after the change intaxes.Hint: The new consumption schedule must pass through one point on the left and one point on the right.Hint: The new consumption schedule must pass through one point on the left and one point on the right.50Consumption with Tax Increase through a Fixed TaxConsumption with Tax Increase through a Variable Tax+20406080100REAL GDP (Billions of dollars)The blue line on the next graph represents the original total expenditure line for this economy before the change in tax structure.Use the new consumption line you just plotted to calculate the new total expenditure at two levels of real GDP and fill in the foilowing table.GDP levelTotal Expenditure(Billions of dollars)(Billions of dollars)10159025Use the green points (triangle symbols) to draw the new total expenditure line on this graph given the tax increase through a fixed tax previouslydiscussed and subsequent changes in the consumption schedule shown on the preceding graph.REAL CONSUMER SPENDING (Billions of dollars)

Answered: Image /qna-images/answer/f4c5afde-2df8-4a35-ad3b-2cc5d4993209.jpg

On the first graph, use two purple points (diamond symbol) to connect the two black points (plus symbols) representing the consum that would result from a tax increase through a variable tax. (Hint: As before, the consumption schedule must pass through on and one point on the right.) On the second graph, use the purple points (diamond symbols) to draw the total expenditure line that would result from a tax incres variable tax indicated on the top graph. True or False: The change in equilibrium output is smaller when the government implements the variable tax hike.

On the first graph, use two purple points (diamond symbol) to connect the two black points (plus symbols) representing the consum that would result from a tax increase through a variable tax. (Hint: As before, the consumption schedule must pass through on and one point on the right.) On the second graph, use the purple points (diamond symbols) to draw the total expenditure line that would result from a tax incres variable tax indicated on the top graph. True or False: The change in equilibrium output is smaller when the government implements the variable tax hike.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In the country of Arcadia, the minimum amount of consumption spending that will occur in a given year is $50- that is, no matter what level of income households have, the aggregate amount of consumption spending in the economy will be at least $50. In addition, for every extra dollar of national income, consumption spending will increase by $0.75. (Note: For the entirety of this problem, assume that Taxes = trans fers = 0, and the aggregate price level in Arcadia is fixed.) a. What is the marginal propensity to consume in Arcadia? [TYPE YOUR ANSWER BELOW] b. Write out the consumption function for the Arcadian economy. [TYPE YOUR ANSWER BELOW]
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