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?

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?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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