Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 24.A, Problem 1P
To determine
The case in which tax revenues depend on income.
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16. Suppose that planned investment and planned government purchases do not depend on income:I = 15 and G = 17. Consumption, as you would expect, does depend on income via the consumption function C = 2 + 0.75Y – 0.75T. Net taxes are T = 12.
Your friend thinks that the equilibrium will be where Y = 150 but he is wrong. What is the best description of this situation?
a. the (Y, AE) point is above the 45 degree line, Y will adjust down
b. the (Y, AE) point is above the 45 degree line, Y will adjust up
c. the (Y, AE) point is below the 45 degree line, Y will adjust down
d. the (Y, AE) point is below the 45 degree line, Y will adjust up
17. (continued) Help you friend by calculating the equilibrium income for the AE model in the previous question.
Y = _____
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 ?
Chapter 24 Solutions
Principles of Economics (12th Edition)
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- Suppose that the government decreases its autonomous spending by $100 billion and also decreases its autonomous taxes by $100 billion. How would this affect the economy? Question 8 options: No effect on the level of GDP GDP may rise or fall depending on the size of the mpc GDP will rise GDP will fallarrow_forwardProblem 2. You are given the following data for an economy: Consumption C = 20 + 0.8 Y, 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 ?arrow_forwardConsider 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?arrow_forward
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