Refer to the information provided in Figure 23.6 below to answer the question(s) that follow. Aggregate saving -60 600 Figure 23.6 S Aggregate income Refer to Figure 23.6. If aggregate income is $1,000, aggregate consumption is $850. $910. $920. $960.

Show full answers to the questions and steps to this exercise

None

ax policy is one used not only for economic purposes but also for political purposes. It is the opinion of some economists and politicians that the rich should pay more of their income in taxes, and that the resulting fairness from this rise in taxes will lead to more economic growth and a rise in employment. Using the simple expenditure model (Y and Ep, not IS-LM) answer these two questions: One, would a lump-sum tax increase on many high-income households cause GDP to rise in the short run as predicted by the politicians? Why or why not? And two, are there macroeconomic conditions in the simple model under which such a tax increase would be fully warranted? Draw the graphs and explain the outcomes for both cases.