Assume that the consumption function is given by C = 150 + 0.85(Y – T) and the tax function is given by T = t0 + t1Y where C = Consumption, Y = Total output/income, t0 = Autonomous/fixed tax and t1 = Tax rate. If t0 increases by 1 unit, then explain whether consumption will be increased or decreased, and how much?
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Assume that the consumption function is given by C = 150 + 0.85(Y – T)
and the tax function is given by T = t0 + t1Y where C = Consumption,
Y = Total output/income, t0 = Autonomous/fixed tax and t1 = Tax rate. If t0
increases by 1 unit, then explain whether consumption will be increased or
decreased, and how much?
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- 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.Imagine this economy has a 10% tax on income. The following are exogenous (not directly affected by income): G = 11 I = 4 X = M = 0 The consumption function is: C = k + cY, where k = 3, c = 0.8 Now we have to take that tax into account. Here is a way to think about it: Look at the consumption function. It says if you give me one more dollar of income I will spend 80 cents of it (mpc = 0.8). BUT I can only spend what I receive. I can only spend my after-tax or disposable income. With a 10% tax, I don't receive Y I receive 90% of Y or Y*(1-t) where t = 10% or 0.1. Let's define disposable income as Yd where Yd = Y*(1-t). Therefore we restate our consumption function as C = k + cYd Now we have, in this case, C = k + cYd or C = 3 + 0.8Yd or C = 3 + 0.8*(Y*[1-0.1]) or C = 3 + 0.72Y. Now what is the equilibrium GDP? Give the answer to ONE decimal place.C = 450 + 0.4Y I = 350 G = 150 X = 70 Z = 35 + 0.1Y T = 0.15Y Yf = 1550 Calculate the tax revenue to the government of this country when the economy remains in equilibrium. Calculate what the new equilibrium income should be if the government of this country decides to cancel all taxes, implying the tax rate would now be 0%. Before the government decreased the tax rate, how much of government spending was required to bring the economy to full employment?
- C = 450 + 0.4Y I = 350 G = 150 X = 70 Z = 35 + 0.1Y T = 0.15Y Yf = 1550 Q.2.5 Calculate what the new equilibrium income should be if the government of this country 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 government spending was required to bring the economy to full employment?C = 450 + 0.4Y I = 350G = 150X = 70Z = 35 + 0.1Y T = 0.15YYf = 1550Calculate the tax revenue to the government of this country when the economy (2) remains in equilibrium.Calculate what the new equilibrium income should be if the government of this (6) country decides to cancel all taxes, implying the tax rate would now be 0%.Before the government decreased the tax rate, how much of government spending was required to bring the economy to full employment?Assume that, without taxes, the consumption schedule for an economy is shown below: GDP, Billions Consumption, Billions $100 $120 200 200 300 280 400 360 500 440 600 520 700 600 Graph this consumption schedule and determine the size of the MPC. Assume that a lump-sum (regressive) tax of $10 billion is imposed at all levels of GDP. Calculate the tax rate at each level of GDP. Graph the resulting consumption schedule and compare the MPC and the multiplier with those of the pretax consumption schedule. Now suppose a proportional tax with a 10 percent tax rate is imposed instead of the regressive tax. Calculate and graph the new consumption schedule and note the MPC and the multiplier. Finally, impose a progressive tax such that the tax rate is 0 percent when GDP is $100, 5 percent at $200. 10 percent at $300, 15 percent at $400, and so forth. Determine and graph the new consumption schedule, noting the effect of this tax system…
- 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?If a tax rate of 1/3 of national income were introduced, what would be the new equilibrium level of national income in the economy outlined above. Show all your workings and explain the mechanisms through which the economy reaches the new equilibrium.C = 450 + 0.4Y I = 350 G = 150 X = 70 Z = 35 + 0.1Y T = 0.15Y Yf = 1550 Q.2.5 Calculate what the new equilibrium income should be if the government of this country decides to cancel all taxes, implying the tax rate would now be 0%.
- 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.1. Consider an economy with the initial equilibrium income level of $1000 and the consumption function of C = $150 + 0.6 (Y - T). Find the following quantities:a. Government expenditures at the equilibrium level of income if T = $160 and I = $100.b. The change in income produced by increasing taxes 10%, provided that G and I remain unchanged. What is the tax multiplier?c. The change in income produced by increasing government expenditures 10%, provided that T and I remain unchanged. What is the government spending multiplier?d. Based on your answers to (b) and (c), does the balanced budget multiplier theorem hold?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?