Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![**Problem Statement:**
With these equations:
- \( C = 230 + 0.66Y_d \)
- \( F = 470 \)
- \( G = 280 - 0.13Y \)
- \( X = 470 \)
- \( M = 555 \)
- \( T = 13 + 0.25Y \)
**Question:** What is the tax multiplier?
**Educational Explanation:**
To solve for the tax multiplier, you'll need to understand how changes in taxes affect the overall economy. The tax multiplier is a measure of the change in output resulting from a change in taxes. It's calculated using various economic factors, including consumption, saving, and government spending. To compute it, you'll typically apply the following formula:
\[ \text{Tax Multiplier} = -\frac{MPC}{1 - MPC \times (1 - t)} \]
Where:
- MPC is the marginal propensity to consume,
- \( t \) is the tax rate.
You'll need to determine these values from the equations given.
Note:
- \( Y_d \) stands for disposable income.
- \( C \) is the consumption function.
- \( G \) is government spending, which here is a function of income \( Y \).
- \( X \) and \( M \) are exports and imports, respectively.
- \( T \) represents taxes, with a fixed and a variable component linked to income \( Y \).](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdb24b717-8ee5-4ca9-8061-74ddb7e91c1a%2Fab339aab-2861-4c48-b754-3f5204e99369%2F7s9h4xl_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Problem Statement:**
With these equations:
- \( C = 230 + 0.66Y_d \)
- \( F = 470 \)
- \( G = 280 - 0.13Y \)
- \( X = 470 \)
- \( M = 555 \)
- \( T = 13 + 0.25Y \)
**Question:** What is the tax multiplier?
**Educational Explanation:**
To solve for the tax multiplier, you'll need to understand how changes in taxes affect the overall economy. The tax multiplier is a measure of the change in output resulting from a change in taxes. It's calculated using various economic factors, including consumption, saving, and government spending. To compute it, you'll typically apply the following formula:
\[ \text{Tax Multiplier} = -\frac{MPC}{1 - MPC \times (1 - t)} \]
Where:
- MPC is the marginal propensity to consume,
- \( t \) is the tax rate.
You'll need to determine these values from the equations given.
Note:
- \( Y_d \) stands for disposable income.
- \( C \) is the consumption function.
- \( G \) is government spending, which here is a function of income \( Y \).
- \( X \) and \( M \) are exports and imports, respectively.
- \( T \) represents taxes, with a fixed and a variable component linked to income \( Y \).
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