MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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Question
Chapter 11.A, Problem 3TY
a)
To determine
To describe:The effect on the
b)
To determine
To describe:
The impact on the equilibrium GDP, if the income tax is reduced by a factor of 2% from 20 to 18%
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17. (Figure: Laffer Curve 3) A supply-side economist is advocating reducing income tax rates. She is probably assuming that the economy is at point
Average Tax Rate(%)
O d
3
b
Chapter 10 Part 2: Homework Problems
C
Tax Revenues (millions of dollars)
in the graph.
1 match C
The economy of Godzillaland is represented by the following:C=50+0.25Y d , T=1000, G=1000, I=100
(a) Calculate the equilibrium level of output. Graph your solution.
(b) If the government spending increases by 50 what is the new equilibrium level of output? Use the government spending multiplier.
(c) If the government increases taxes by 50 what is the new equilibrium level of output? Use the tax multiplier.
(d) If the government increases taxes and spending by 50 what is the new equilibrium level of output?
(e) Calculate the equilibrium level of output in case where taxes depend on income according to the following: T=-25+0.125Y.
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?
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