TAXES ENTER OUR FISCAL MODEL OF THE ECONOMY INDIRECTLY
TAXES ENTER OUR FISCAL MODEL OF THE ECONOMY INDIRECTLY WELE TAXES AFFECT INCOME NOUR GRANTHEY ENTER THROUGH A CHANGE IN CONSUMPTION IN SUM, CHANGES IN TAXES WELTECT THE LEVEL OF CONSUMPTION IN OUR MODEL
Homework Answers
Answer - Option D is the answer that is taxes will affect income, but some income is spent as MPC.
Reason - taxes affect the disposable income. the increase or decrease in the disposable income will lead to the change in pattern of consumption which is called the MPC
Consider a hypothetical economy where there are no taxes and no international trade. Households spend $0.90...
Consider a hypothetical economy where there are no taxes and no international trade. Households spend $0.90 of each additional dollar they earn and save the remaining $0.10. If there are no taxes and no international trade, the oversimplified multiplier for this economy is. Suppose investment spending in this economy decreases by $150 billion. The decrease in investment will lead to a decrease in income, generating a decrease in consumption that decreases income yet again, and so on. Fill in the...
Assume a simple model of the US economy with no international trade. Suppose the government, in...
Assume a simple model of the US economy with no international trade. Suppose the government, in an effort to stimulate the economy, increases its spending on goods and services without changing taxes. Using the model of the market for loanable funds, show how this policy will affect the levels of saving, investment, consumption, and total output in the long run. Explain your answers carefully Suppose the government did not change its level of spending but decreased taxes instead. Show how...
Which of the following statements about taxation is incorrect? A change in taxes does not affect...
Which of the following statements about taxation is incorrect? A change in taxes does not affect consumption. An increase in taxes decreases income and expenditures. A tax cut raises income and expenditures. Cutting taxes by $20 is not the same as increasing government spending by $20. A tax cut affects aggregate demand indirectly. The sum of the unemployment rate and the inflation rate is known as: the mortality rate. the misery index. a coincident indicator. the macroeconomic index. the market...
6. Graphical treatment of taxes and fiscal policy The main difference between variable taxes and fixed...
6. Graphical treatment of taxes and fiscal policy The main difference between variable taxes and fixed taxes is that unlike variable taxes, fixed taxes do not vary with GDP . The following graph shows the consumption schedule for an economy with a given level of taxes. Suppose the government implements a tax increase through a variable tax. Use two green points (triangle symbol) to connect the two black points (plus symbols) representing the consumption schedule after the change in taxes....
Consider an economy in which taxes, planned investment, government spending on goods and services, and net...
Consider an economy in which taxes, planned investment, government spending on goods and services, and net exports are autonomous, but consumption and planned investment change as the interest rate changes. You are given the following information concerning autonomous consumption, the marginal propensity to consume, planned investment, government purchases of goods and services, and net exports: Ca = 1,500 – 10r; c = 0.6; Ta = 1,800; Ip = 2,400 – 50r; G = 2,000; NX = -200 (a)Derive Ep and...
36 37 Fiscal policy refers to changes in A) state and local taxes and purchases that...
36 37 Fiscal policy refers to changes in A) state and local taxes and purchases that are intended to achieve macroeconomic policy objectives. B) federal taxes and purchases that are intended to achieve macroeconomic policy objectives. C) federal taxes and purchases that are intended to fund the war on terrorism. D) the money supply and interest rates that are intended to achieve macroeconomic policy objectives. 3957 Which of the following is an objective of fiscal policy? A) energy independence from...
2. Algebra of the income-expenditure model Consider a small economy that is closed to trade, so...
2. Algebra of the income-expenditure model Consider a small economy that is closed to trade, so that its net exports are zero. Suppose that the economy has the following consumption function, where C is consumption, Y is income (real GDP), IP is planned investment, G is government purchases, and T is taxes: C = $45 billion+0.75×(Y – T) Suppose G=$60 billion, IP=$60 billion, and T=$20 billion. Given the consumption function and the fact that, in a closed economy, planned expenditure...
Suppose you have the following information about a fictitious economy. Assume there are no taxes in...
Suppose you have the following information about a fictitious economy. Assume there are no taxes in this economy. Disposable Income and Consumption Disposable Income (dollars) Consumption (dollars) $0 $9,000 8,500 15,500 18,500 22,000 28,500 28,500 38,500 35,000 48,500 41,500 Instructions: In parts a and c, enter your answers as a whole number. In part b, round your answers to two decimal places. a. What is the equilibrium level of consumption? $_________ b. What is the MPC and MPS for this...
ONE PERIOD MODEL (representative households problem with taxes) Let's assume that the state taxes households with...
ONE PERIOD MODEL (representative households problem with taxes) Let's assume that the state taxes households with tax rate T instead of lump-sum tax) Thus, disposable income is: I(1-TWN We can assume that income effect is greater than substitution effect. Analyze graphically how the change in tax rate T affects to labor supply and consumption? Analyze especially by using income and substitution effects. '
Explain how fiscal policy (government spending and taxes) and monetary policy (determining interest rates) affect the...
Explain how fiscal policy (government spending and taxes) and monetary policy (determining interest rates) affect the level of output and employment in the economy according to Keynesian theory. What fiscal and monetary policies should the government follow to pull the economy out of a recession?
6. Graphical treatment of taxes and fiscal policy The main difference between variable taxes and fixed taxes is that unlike variable taxes, fixed taxes do not vary with GDP . The following graph shows the consumption schedule for an economy with a given level of taxes. Suppose the government implements a tax increase through a variable tax. Use two green points (triangle symbol) to connect the two black points (plus symbols) representing the consumption schedule after the change in taxes....
36 37 Fiscal policy refers to changes in A) state and local taxes and purchases that are intended to achieve macroeconomic policy objectives. B) federal taxes and purchases that are intended to achieve macroeconomic policy objectives. C) federal taxes and purchases that are intended to fund the war on terrorism. D) the money supply and interest rates that are intended to achieve macroeconomic policy objectives. 3957 Which of the following is an objective of fiscal policy? A) energy independence from...
ONE PERIOD MODEL (representative households problem with taxes) Let's assume that the state taxes households with tax rate T instead of lump-sum tax) Thus, disposable income is: I(1-TWN We can assume that income effect is greater than substitution effect. Analyze graphically how the change in tax rate T affects to labor supply and consumption? Analyze especially by using income and substitution effects. '
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