QUESTION 6
Assume that, without taxes, the consumption schedule for an economy is as shown in the table below. Impose a progressive tax such that the tax rate is 0 percent when GDP is $100, 5 percent at $200, 10 percent at $300, 15 percent at $400, and so forth. Determine the new consumption schedule, noting the effect of this tax system on the MPC (tax inclusive) and the multiplier.
GDP, Billions
Consumption Before Tax, Billions
Tax, Billions
Disposable Income, Billions
Consumption After Tax, Billions
Tax Rate, Percent
MPC
100
120
null
200
200
300
280
400
360
500
440
600
520
700
600
QUESTION 6
Assume that, without taxes, the consumption schedule for an economy is as shown in the table below. Impose a progressive tax such that the tax rate is 0 percent when GDP is $100, 5 percent at $200, 10 percent at $300, 15 percent at $400, and so forth. Determine the new consumption schedule, noting the effect of this tax system on the MPC (tax inclusive) and the multiplier.
|
Related textbook solutions
Related questions
Assume that, without taxes, the consumption schedule of an economy is as follows:
| GDP, Billions | Consumption, Billions |
| $0 | $40 |
| 100 | 120 |
| 200 | 200 |
| 300 | 280 |
| 400 | 360 |
| 500 | 440 |
| 600 | 520 |
| 700 | 600 |
a. What is the value of the MPC? _______
b. Assume now that a lump-sum tax is imposed such that the government collects $10 billion in taxes at all levels of GDP. Add the after-tax consumption to the table below.
| GDP, Billions | Consumption, before tax | Lump-sum tax | Consumption, After tax |
| $0 | $40 | $10 | |
| 100 | 120 | 10 | |
| 200 | 200 | 10 | |
| 300 | 280 | 10 | |
| 400 | 360 | 10 | |
| 500 | 440 | 10 | |
| 600 | 520 | 10 | |
| 700 | 600 | 10 |
Compare the MPC and the multiplier with those of the pretax consumption schedule.
Instructions: Round your answers to 1 decimal place.
MPC after tax = ______ ?
Multiplier after tax = ______ ?
The MPC and multiplier are: higher before the tax OR higher after the tax OR the same before and after the tax ?
1) Assume the following data for a country: total population, 500; population under 16 years of age or institutionalized, 120; not in labor force, 150; unemployed, 23; part-time workers looking for full-time jobs, 10. What is the size of the labor force? What is the unemployment rate?
2) If the CPI was 110 last year and is 121 this year, what is this yearâs rate of inflation? In contrast, suppose that the CPI was 110 last year and 108 this year. What is this yearâs rate of inflation? What term do economics use to describe this second outcome?
3) Use the hypothetical economy data in the table below to answer the following questions.
| Amount of Real GDP Demand, in Billions | Price Level (Price Index) | Amount of Real GDP Supplied, in Billions |
| $180 | 300 | $500 |
| 260 | 250 | 400 |
| 300 | 200 | 300 |
| 420 | 150 | 200 |
| 560 | 100 | 100 |
â¨
a) What is the equilibrium price level and the equilibrium level of real output in this hypothetical economy? Use Excel to graph both the aggregate demand and aggregate supply curves. Can there be equilibrium level of output at below full employment?
b) At what price level will aggregate supply FALL BELOW [equal] aggregate demand? At what price level will demand fall below aggregate supply? If given a price level of 250, will aggregate demand exceed supply?
c) If the aggregate demand schedule shifted by $140 billion to the right at every level, what would be the new equilibrium level of income?
