Suppose that, within the simple Keynesian model used in Section 4, the level of government spending (G)
Question:
C = 25 + 0.8YD
Net taxes (T) are initially given by the tax function
T = - 50 + 0.30Y
Calculate equilibrium income (Y̅). Now suppose that the tax rate is decreased from 0.30 to 0.25. Find the new level of equilibrium income. Compute the values of the autonomous expenditure multiplier before and after the tax cut?
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