fiscal policy variables G and T are independent of the level of income. In the real...

 

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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 the level of income and so tend to be higher when income is higher. In this problem, we examine how this automatic response of taxes can help reduce the impact of changes in autonomous spending on output Consider the following behavioral equations: C=C₁+C₁YD T = to +t₁Y YD=Y-T G and I are both constant. Assume that t, is between 0 and 1. Note co is autonomous consumption, c, is the propensity to consume, and to is the part of taxes not dependent on income Solve for equilibrium output (Use I instead of I in your equation) Y = (Property format your expression using the tools in the palette. Hover over tools to see keyboard shortcuts. E g., a subscript can be created with the character) 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 the level of income and so tend to be higher when income is higher. In this problem, we examine how this automatic response of taxes can help reduce the impact of changes in autonomous spending on output Consider the following behavioral equations: C=C₁+C₁YD T = to +t₁Y YD=Y-T G and I are both constant. Assume that t, is between 0 and 1. Note co is autonomous consumption, c, is the propensity to consume, and to is the part of taxes not dependent on income Solve for equilibrium output (Use I instead of I in your equation) Y = (Property format your expression using the tools in the palette. Hover over tools to see keyboard shortcuts. E g., a subscript can be created with the character)