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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Suppose there is a simultaneous increase in government spending (fiscal policy) and autonomous consumption, what would happen to consumption C. tax generation T and national income Y? C+ BT-bY = Co T-tY To -C+Y = Io + Go (National Income Equation) (Consumption Function) (Income-Dependent Tax)
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If there is an increase in government spending how can you solve the change in equilibrium Y? What's the formula?
Assume that government purchases decrease by $10 billion, with other factors held constant, including the price level. Calculate the change in the level of the real GDP demanded for each of the following values of the MPC. Then, calculate the change if the government, instead if reducing its purchases, increased autonomous net taxes by $10 billion. a. 0.9 b. 0.8 c. 0.75 d. 0.6
On average, does an increase in taxes raise or lower real GDP? If taxes as a percent of GDP go up 1 percent, by how much does real GDP change? Are the decreases in real GDP caused by tax increases temporary or permanent? Does the intention of a tax increase matter?
Can you assist with solving the following question, I do not understand how the calculation works. Thanks Assume that government purchases decrease by $10 billion, with other factors held constant, including the price level. Calculate the change in the level of real GDP demanded for each of the following values of the MPC. Then, calculate the change if the government, instead of reducing its purchases, increased autonomous net taxes by $10 billion. 0.9 0.8 0.75 0.6
Please refer to this question as you answer the one attached. a) If government spending is increased to G=80,What happens to equilibrium income?explain using government spending multiplier what happens to imports?
For an economy, the following information is given to you. C= 0.7(1 -t)Y I 300-0.02r M"/P= 2+0.2Y – 0,3r where C is consumption t is proportion income tax rate, I is investment, M" is money demand, P is price, Y is income (output) and r is real interest rate. If Government expenditure (G) is 479 , tax rate (t) is 14%, price level ( P) is 17, and nominal money supply is 980, the IS-LM equilibrium output is (two decimal points).