ZuoTi.Pro
Question

Now we introduce the role of income taxes into the Keynesian system. U.S. taxes consist of...

Now we introduce the role of income taxes into the Keynesian system. U.S. taxes consist of autonomous taxes and income taxes. Autonomous taxes such as sales taxes and property taxes do not depend on income, whereas income taxes such as personal income taxes and corporate income taxes depend on the level of income. When we introduce income taxes into the model, the multipliers are modified as follows:

Assuming that the U.S. MPC is 0.9, and the average income tax rate is 0.3 (30%), calculate the multipliers

The investment multiplier = 1/[1 - MPC(1 - Tax rate)].

business   economics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

The formula for investment multiplier uses the average tax rate which is 0.3 and at the marginal propensity to consume is 0.9

Multiplier = 1/(1-0.9*(1-0.3))

= 1/(1-0.63)

= 1/0.37

= 2.703

This is the investment multiplier

0 0
Add a comment
Know the answer?
Add Answer to:
Now we introduce the role of income taxes into the Keynesian system. U.S. taxes consist of...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Now we introduce the role of income taxes into the Keynesian system. U.S. taxes consist of...

    Now we introduce the role of income taxes into the Keynesian system. U.S. taxes consist of autonomous taxes and income taxes. Autonomous taxes such as sales taxes and property taxes do not depend on income, whereas income taxes such as personal income taxes and corporate income taxes depend on the level of income. When we introduce income taxes into the model, the multipliers are modified as follows: Assuming that the U.S. MPC is 0.9, and the average income tax rate...

  • The Multiplier in the Simple Model with No Income Taxes The simple government purchase multiplier is...

    The Multiplier in the Simple Model with No Income Taxes The simple government purchase multiplier is given by 1/(1 - MPC). Suppose that the U.S. MPC is 0.9. Calculate the government purchase multiplier. If the U.S. government increases its spending by $100 billion to stimulate the economy devastated by the Coronavirus crisis, how much will U.S. GDP increase in the simple model?

  • 35. Death and Taxes. The basic Keynesian Cross model from 11-1 in the textbook assumes taxes are exogenous and inde...

    35. Death and Taxes. The basic Keynesian Cross model from 11-1 in the textbook assumes taxes are exogenous and independent of income, but that is not realistic so let's modify the model. i. Here are two options for modeling taxes as a function of income: a) T(Y) = 2 + 0.2Y or b) T(Y) = 2-0.2Y Which choice is more realistic? Briefly explain your choice to yourself. Suppose I = 6, C = 10 +0.5(Y-T) and G is unknown. Set...

  • In the simple Keynesian model, taxes do not depend on income (T = Ta). Suppose Ta...

    In the simple Keynesian model, taxes do not depend on income (T = Ta). Suppose Ta = 80 and: C = 250 + 0.75 YD Ip = 64 G = 100 NX = 20 A. Calculate the equilibrium GDP and show graphically. What is the budget surplus (or deficit)? Hint: BS = T - G B. Suppose in order to reduce the deficit, government spending is reduced by 20 (from 100 to 80. Calculate the new equilibrium GDP and show...

  • ) Suppose that, instead of a fixed level of taxes, we had an income tax so...

    ) Suppose that, instead of a fixed level of taxes, we had an income tax so that T = T0 + T1Y Where was the income tax rate. Derive an expression for equilibrim income for this case in which the level of tax collections depends on income. What are the expressions for government expenditure multiplier, autonmous tax multiplier and balanced budget multiplier for this case of an income tax? Do the multipliers fall or rise? Explain

  • Peninsula Technologies Co. is a U.S. firm that sells electronic equipment. One of its foreign subsidiaries had $3.4 m of taxable income in the fiscal year. Calculate what the foreign and U.S. taxes wo...

    Peninsula Technologies Co. is a U.S. firm that sells electronic equipment. One of its foreign subsidiaries had $3.4 m of taxable income in the fiscal year. Calculate what the foreign and U.S. taxes would be on this income in the two cases presented below: Baseline Values : Case 1 /Case 2 a. Foreign corporate income tax rate 28% / 40% b. U.S. corporate income tax rate 35% / 35% c. Foreign dividend withholding tax rate 0% / 10% d. U.S....

  • Solve 1. 2. 3. 4. 5. 1 Keynesian Cross Assume that households' consumption function is given...

    Solve 1. 2. 3. 4. 5. 1 Keynesian Cross Assume that households' consumption function is given by C(Y -T) 50+ 0.75(Y T), that firms' investment function is I(r) 150 10r, government spending is G 150, and the tax bill T 200. 1. What is the Marginal Propensity to Consume "MPC")? 2. What is the equilibrium level of real GDP in the goods market if the real interest rate is 5%? (Plug in r = 5 for 5%, rather than 0.05...

  • KEYNESIAN MACROECONOMICS ( THE ROLE OF AGGREGATE DEMAND Derive and compare the mutipliers for two-secto...

    KEYNESIAN MACROECONOMICS ( THE ROLE OF AGGREGATE DEMAND Derive and compare the mutipliers for two-sector, three sector and four-sector economies Assume a 2 Suppose that for a particular economy C 2500 T-2500 G 2500 3000 a) Determine the equlbrium income and show it graphicaly Detemine thegovemment budget b) Has the economy achieved ful employment equilibrium income a employment is 350007 Whr )taxes are reduced? What is the new budget and the new funcion forax Show the outcomes graphically C- 200...

  • 9.What is Say’s Law and what do classical economists say about prices, wages, and interest rates?...

    9.What is Say’s Law and what do classical economists say about prices, wages, and interest rates? What are the three states of the economy in relating the real GDP to natural real GDP? In a recessionary gap, is there a surplus or a shortage of production? What does that imply about the labor market and how wages may change? Understand the differences between a recessionary gap, inflationary gap, and long run equilibrium. How is the physical production possibilities frontier (PPF)...

  • 12. The tax system Provisions of the U.S. Tax Code for Corporations and Individuals From a...

    12. The tax system Provisions of the U.S. Tax Code for Corporations and Individuals From a corporation's point of view, does the tax treatment of dividends and interest paid favor the use of debt financing or equity financing? Debt financing Equity financing To offset taxable income in a given year, ordinary corporate operating losses can be Carried back for 2 years and carried forward for 20 years Carried back for 5 years and carried forward for 10 years Cute Camel...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT