Describe how taxes that depend positively on real GDP reduce the size of the multiplier and act
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Let's look a little more closely at the mathematics of how this works. Let's assume that the government "captures" a fraction t of any increase in real GDP in the form of taxes, where t, the tax rate, is a fraction between 0 and 1. Consider the effects of a $100 billion increase in investment spending. (this will hold to any change in autonomous aggregate spending) in a close economy without any transfers. (a) State the equation for change in disposable income: (b) Fill out the following table. (Hint: remember that you consume fraction of your disposable income (after tar), and you have to pay taxes on all your additional income Round 1 2 3 4 Total: Change in GDP Increase in investment spending Second-round increase in consumer spending Third-round increase in consumer spending Fourth-round increase in consumer spending Amount of change in GDP Let's look a little more closely at the mathematics of how this works. Let's assume that the government "captures" a fraction t of any increase in real GDP in the form of taxes, where t, the tax rate, is a fraction between 0 and 1. Consider the effects of a $100 billion increase in investment spending. (this will hold to any change in autonomous aggregate spending) in a close economy without any transfers. (a) State the equation for change in disposable income: (b) Fill out the following table. (Hint: remember that you consume fraction of your disposable income (after tar), and you have to pay taxes on all your additional income Round 1 2 3 4 Total: Change in GDP Increase in investment spending Second-round increase in consumer spending Third-round increase in consumer spending Fourth-round increase in consumer spending Amount of change in GDP Let's look a little more closely at the mathematics of how this works. Let's assume that the government "captures" a fraction t of any increase in real GDP in the form of taxes, where t, the tax rate, is a fraction between 0 and 1. Consider the effects of a $100 billion increase in investment spending. (this will hold to any change in autonomous aggregate spending) in a close economy without any transfers. (a) State the equation for change in disposable income: (b) Fill out the following table. (Hint: remember that you consume fraction of your disposable income (after tar), and you have to pay taxes on all your additional income Round 1 2 3 4 Total: Change in GDP Increase in investment spending Second-round increase in consumer spending Third-round increase in consumer spending Fourth-round increase in consumer spending Amount of change in GDP
Expert Answer:
Answer rating: 100% (QA)
Taxes and the Multiplier Effect Taxes that depend positively on real GDP act as automatic stabilizer... View the full answer
Related Book For
Posted Date:
Students also viewed these economics questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Let Find A-1 and use it to solve 4 A = (13) where where #1 = 1 and 12 = AX = B B= (8) X = 1 2,
-
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
-
Engineers observe that about 90% of graphite samples fracture within five hours when subjected to a certain stress. (a) If the time to fracture is modeled with an exponential distribution, what would...
-
Refer to the bill of materials for product A shown in the figure below. If inventory consists of 2 units of B, 1 unit of F, and 3 units of G, how many units of G, E, and D must be purchased to...
-
Weiqi has two fair triangular spinners. The sides of one spinner are labelled 1, 2, 3, and the sides of the other are labelled 2, 3, 4. Weiqi spins them simultaneously and notes the two numbers on...
-
Washington Mutual Insurance Company issued an \(\$ 80,000,7 \%, 10\)-vear bond payable at a price of 110 on January 1, 2009. Journalize the following transactions for Washington. Include an...
-
George Company purchased land for use as its corporate headquarters. A small factory that was on the land when it was purchased was torn down, and before the new buildings foundation could be...
-
Assume that your group is working in Finance Department of a construction company. Your company is considering the potential project as follow: Launching a new construction project. There are two...
-
During 2019, Jason and Vicki Hurting, who are married with two children and filing jointly, had the following tax information. Jason owns a cash-basis landscaping business, and Vicki works as a sales...
-
What should be the schools role in helping your students in the process of identity development? How would Erikson respond to this question? How would Kohlberg respond? How would Gilligan respond?...
-
The female patient was admitted with right lower quadrant abdominal pain, diarrhea, fever, chills, and nausea for the past 5days. Blood and stool cultures were negative. CT of the abdomen ruled out...
-
NovaCast Innovations Ltd, a manufacturer and retailer of cutting-edge fishing equipment, began its business on 1 July 2021 by issuing 100,000 shares with a value of $2.00 each. These shares were...
-
Replace the contents of cell A1 with your class number and name. Use a format to show decimals, dollar signs, % and commas consistent with the example figures below. Use the format option with...
-
6. Eye color is controlled by two genes. At the BEY-2 gene you can have a dominant allele for brown eyes or a recessive alele for blue eyes. At the GEY-2 gene you can have a dominant allele for green...
-
Weight average calculations. Purchase Sold Balance in Inventory Averag Unit Unit Date Units Cost Total Units e Total Units Total Cost Cost/U nit Jan. 1 100 $1 $100 100 $1 $100 7 10 10 $2 $20 110...
-
Explain Search Engine Optimization (SEO) Auditing Tools And Website Validation Tools In Detail With Suitable Examples. Explain at least 5 tools used for keyword research.
-
A random sample of 10 houses heated with natural gas in a particular area, is selected, and the amount of gas (in therms) used during the month of January is determined for each house. The resulting...
-
Should a nation try to become as economically independent as possible? Why or why not?
-
Why does the average variable cost decrease, reach a minimum, and then rise again, whereas the average fixed cost continues to decrease as output increases?
-
What is the relative importance of international trade to the United States and to foreign nations?
-
What problems did the developers of Chinook face? What new techniques did they add to simple Minimax with alpha-beta pruning? Would these techniques extend well to other games?
-
Explain why the alphabeta procedure will always generate the same answer as Minimax without pruning.Why is it useful?
-
Add alphabeta pruning to your program, and see what difference (if any) it makes to the number of nodes the program has to examine when playing a game.
Study smarter with the SolutionInn App