Problem 2. You are given the following data for an economy: Consumption 20 + 0.8 Y4 %3D Investment I= 50 Government expenditure G = 20 Taxes T = 10 Find (a) equilibrium level of income. (b) If lump sum taxes increase by 10, (i) what is the equilihrium level of income, and (ii) lump sum tax multiplier ? (c) If government expenditure decreases by 10, what is (i) equilibrium level of income, (ii) Government expenditure multiplier ?
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- Give typing answer with explanation and conclusion Suppose that the typical Canadian spends 80 percent of their income. There is an income tax rate is 15% per period. If the government wanted to see the effect of a tax cut of $50 billion, what would be the tax multiplier that they would have to use.Problem 1. The following specifications are given for an economy: Consumption, C = 250 + 0.75 Yawhere Y, is disposable income Government expenditure G 150 Investment I = 80 Taxes T 200 (i) Find the equilibrium level of income (Y), Consumption (C) and Private Sector Saving (S) (ii) Using the value of tax multiplier, how much will income increase if taxes are reduced by 30 ?The economy of Godzillaland is represented by the following:C=50+0.25Y d , T=1000, G=1000, I=100 (a) Calculate the equilibrium level of output. Graph your solution. (b) If the government spending increases by 50 what is the new equilibrium level of output? Use the government spending multiplier. (c) If the government increases taxes by 50 what is the new equilibrium level of output? Use the tax multiplier. (d) If the government increases taxes and spending by 50 what is the new equilibrium level of output? (e) Calculate the equilibrium level of output in case where taxes depend on income according to the following: T=-25+0.125Y.
- Consider the following economy: C = 300 + 0.8 (Y – T) I = $300 G = $200 and T = $250 What is the equilibrium level of national income? What is the change in national income, if only government spending increases by $10? What is the government spending multiplier? What is the change in national income, if only taxes increase by $10? What is the tax multiplier? Based on (b) and (c), does the balanced budget multiplier theorem hold? What is the change in national income, if both government spending and taxes increase by $10 each?C = 450 + 0.4YI = 350G = 150X = 70Z = 35 + 0.1YT = 0.15YYf = 1550(Hint: use the multiplier method)Q.2.4 Calculate the tax revenue to the government of this country when the economyremains in equilibrium.Q.2.5 Calculate what the new equilibrium income should be if the government of thiscountry decides to cancel all taxes, implying the tax rate would now be 0%.Q.2.6 Before the government decreased the tax rate, how much of governmentspending was required to bring the economy to full employment?The economy is described by the following functions: Shown in Picture where ?t is the tax rate. Here, the amount of taxes collected depends positively on the gross income. Find the multiplier associated with government purchases. How does this multiplier compare with a model with lump-sum taxes? Why is it lower?
- 15. If government's spending increases by 60 and marginal propensity to consume is 0.8, how will the increase in equilibrium income be? 65 b) 300 90 d) 2501- Suppose that the economy is characterized by the following behavioral equations: C= 160 +0.7YD, T= 100, 1= 150. NX = 100 – 0.1Y. G=150, a What is disposable income (YD)? b. What is equilibrium GDP (Y)? c. What is consumption spending at the equilibrium (C)? d. What is the value of multiplier? e. If government spending increases by 100 units how much does equilibrium income change? f If government increases both taxes and government spending by 100 units how much does equilibrium income change? g. If this was a closed economy (NX-0), what would be the value of multiplier? Compare with the value you obtained previously for the open economy, and comment on why they are different. ICtrl) -1.Suppose MPC = 0.75, if government increases taxes by $2,000, how much will the household consumption increase or decrease initially?
- a) Write the equation representing snapshot of budget and Indicate the status of the budget as having a surplus or deficit, or balanced at Zero and explain why? How is this budget expected to affect the GDP? Explain! (b) Use the lump-sum tax and the MPC to calculate the decrease in consumption due to this lump sum tax (show all your calculations); then use the change in consumption you just obtained to find the consumption after tax (ca-fill in the column 7 below). (c) Use the Ca to find the (after-tax) aggregate expenditures for the 4-sector private-public-open economy (AEa) and fill in the column 8; Now use the column 1 and column 8 to find the new equilibrium GDP and DI in the 4-sector model. (d) Has GDP increased in the 4-sector compared with those in the previous 3-sector equilibrium? If so, by how much? What is the effective multiplier from 3-sector to 4-sector and why? Explain. (e) Has DI changed from 3-sector to 4-sector? Why/why not? How about consumption and savings? Explain…Assume that the economy can be modeled as follows: AE = C + I + G C = 300 + .6Yd I = 400 G = 100 T = 200 Y=1700 consumption=1200 7) Imagine the government would like to increase equilibrium GDP to 2,000, what would it have to set the level of government spending to? 8) What is the size of the spending multiplier? 9) What is the size of the tax multiplier?Why will a temporary tax increase be insignificant in reducing consumption expenditures by the amount expected a) Because people viewed the tax increase as permanent. b) Because people chose to increase their saving. c) Because people viewed the tax increase as temporary. d) consumption expenditures are not related to the level of taxation.