Question: Consider the following equations: C = c0 + c1 YD T = t0 + t1 Y YD = Y - T Assume G and I

Consider the following equations:

C = c0 + c1 YD

T = t0 + t1 Y

YD = Y - T

Assume G and I are both constant (exogenous). Assume t1 is between 0 and 1. It is the marginal tax rate.

a) Solve for equilibrium output (using algebra).

b) What is the formula for the multiplier in this case?

c) Does this economy respond more to a potential increase in G when t1 = 0 or when it is positive? Show and explain.

d) Is this model an example of an automatic stabilizer? Explain.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!

Q:

Consider the following equations: C = c0 + c1 YD T = c0 + t1 Y YD = Y - T Assume G and I are both constant (exogenous). Assume t1 is between 0 and 1. It is the marginal tax rate. a) Solve for...

Q:

The sales are $10 million this and expected to grow at 5% in real terms for the next three years. The appropriate nominal discount rate is 10%. The inflation is expected to be 2% per year during the...

Q:

For any scale of investment I, write down the incentive compatibility constraints for E (the constraint that makes sure he puts effort into the project). Compute the corresponding plegeable income....

Q:

Multipliers, openness, and fiscal policy Consider an open economy characterized by the following equations: C = c0 + c11Y - T2 I = d0 + d1Y IM = m1Y X = x1Y* The parameters m1 and x1 are the...

Q:

content area Part 1 Balanced budget versus automatic stabilizers It is often argued that a balanced budget amendment would actually be destabilizing. Consider the following behavioral equations: C =...

Q:

In an imaginary open economy, we have the following information: C = c0 + c1(Y T) I = I G = G X = X Q = q1Y T = t0 + t1Y Y, C, I, G, X, Q, are respectively income, consumption, investment, government...

Q:

In an imaginary open economy, we have the following information: C = c0 + c1(Y T) I = I G = G X = X Q = q1Y T = t0 + t1Y Y, C, I, G, X, Q, are respectively income, consumption, investment, government...

Q:

So far in this chapter, we have assumed that the fiscal policy variables G and T are independent of the level of income. In the real world, however, this is not the case. Taxes typically depend on...

Q:

Automatic stabilisers So far in this chapter we have been assuming that the fiscal policy variables G and T are independent of the level of income. In the real world, however, this is not the case....

Q:

Automatic stabilizers In this chapter we have assumed that the fiscal policy variables G and T are independent of the level of income. In the real world, however, this is not the case. Taxes...

Q:

The following information relates to the prior- and current- year revenues of the Jeter Village General Fund. Additional information: 1. Because of a reassessment of commercial property, property...

Q:

Selected transactions completed by Calico Interiors, Inc., during its first fiscal year ending December 31 were as follows: Jan. 2. Issued a check to establish a petty cash fund of $800. Mar. 1....

Q:

In the high-level programming language that your school has chosen to use, write and run a short program to test if a number input is greater than or equal to 100 or less than 100.

Q:

& . M . de Koster, of Rene Enterprises, has the master production plan shown below Period ( weeks ) Gross Requirements Lead time is 1 period, setup cost is $ 2 0 0 per order, holding cost is $ 1 0...

Q:

1. Identify examples of mind reading, and describe their impact on Marthas and Andys discussion. Apply what youve learned in this chapter by analyzing the following case study, using the accompanying...

Q:

6. As a class, identify ways in which faculty at your school confi rm and disconfi rm students. Be specifi c in naming particular types of communication (and examples) that are confi rming and...

Q:

4. How often do you use exit, voice, loyalty, and neglect responses to confl ict? What are the effects?