Suppose in a simple economy with no foreign sector, the MPC is equal to 0.9. How much of a lump sum tax (∆T) would have to be given up to raise output by 100 million?

10 million

No worries! We‘ve got your back. Try BYJU‘S free classes today!

11.1 million

Right on! Give the BNAT exam to get a 100% scholarship for BYJUS courses

33.3 million

No worries! We‘ve got your back. Try BYJU‘S free classes today!

100 million

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Open in App

Solution

The correct option is B
11.1 million

The multiplier here is the tax multipler= $\frac{- c}{1 - c}$ = -9. To increase output by 100 million, lump-sum taxes worth $\frac{100}{9}$ million = 11.1 million have to be given up.

Suggest Corrections

Similar questions

Suppose in a simple economy with no foreign sector, the MPC is equal to 0.75. How much government spending (∆G) would be needed to raise output by 100 million?

Suppose in a simple economy with no foreign sector, the MPC is equal to 0.8. If the government increased government spending by $30 m i l l i o n, a n d i t s i m u l t a n e o u s l y r a i s e d t a x e s b y$ 30 million, how much will be the change in output (∆Y)?

Number of RBCs/mm3 in healthy female is

Suppose that for a particular economy, investment is equal to 200, government purchases are 150, net taxes (that is lump-sum taxes minus transfer) is 100 and consumption is given by C = 100 + 0.75y

(i) What is the level of equilibrium income?

(ii) Calculate the value of the government expenditure multiplier and the tax multiplier.

(iii) If the government expenditure increases by 200, find the change in equilibrium income.

The TR curve of a monopoly firm is given by the equation
$T R = - q^{2} + 12 q - 20$ , where TR is in millions of dollars.

What is the maximum revenue of the firm?

Join BYJU'S Learning Program

Suppose in a simple economy with no foreign sector, the MPC is equal to 0.9. How much of a lump sum tax (∆T) would have to be given up to raise output by 100 million?

The correct option is B 11.1 million The multiplier here is the tax multipler= −c1−c = -9. To increase output by 100 million, lump-sum taxes worth 1009 million = 11.1 million have to be given up.

The correct option is B
11.1 million

The multiplier here is the tax multipler= $\frac{- c}{1 - c}$ = -9. To increase output by 100 million, lump-sum taxes worth $\frac{100}{9}$ million = 11.1 million have to be given up.