Assume that, without taxes, the consumption schedule of an economy is as follows:
GDP, Consumption,
Billions Billions
$100 .......... $120
200 .......... 200
300 .......... 280
400 .......... 360
500 .......... 440
600 .......... 520
700 .......... 600
a. Graph this consumption schedule and determine the MPC.
b. Assume now that a lump-sum tax is imposed such that the government collects $10 billion in taxes at all levels of GDP. Graph the resulting consumption schedule and compare the MPC and the multiplier with those of the pretax consumption schedule.