Suppose marginal propensity to consume is 0.75 and there is a 20 per cent proportional income tax. Find the change in equilibrium income for the following (a) Government purchases increase by 20 (b) Transfers decrease by 20.

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Solution

In case of proportional taxes

(a)

MPC = 0.75 and ΔG = 20

= 50

(b) Transfer decreases by 20

= 60

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Suppose marginal propensity to consume is 0.75 and there is a 20% proportional income tax. Find the change in equilibrium income for the following:

(i) Government purchases increase by 20

(ii) Transfers decrease by 20

Suppose that for a particular economy, investment is equal to 200, government purchases are 150, net taxes (that is lump-sum taxes minus transfers) is 100 and consumption is given by C = 100 + 0.75Y (a) What is the level of equilibrium income? (b) Calculate the value of the government expenditure multiplier and the tax multiplier. (c) If government expenditure increases by 200, find the change in equilibrium income.

Consider an economy described by the following functions: C = 20 + 0.80Y, I = 30, G = 50, TR = 100 (a) Find the equilibrium level of income and the autonomous expenditure multiplier in the model. (b) If government expenditure increases by 30, what is the impact on equilibrium income? (c) If a lump-sum tax of 30 is added to pay for the increase in government purchases, how will equilibrium income change?

Q. Calculate Marginal Propensity to Consume from the following:
(i) Equilibrium income Rs. 350
(ii) Consumption expenditure at zero income Rs. 20
(iii) Investment Rs. 50

Consider an economy described by the following function: C = 20 + 0.80Y, I = 30, G = 50, TR = 100.

(i) Find the equilibrium level of income and the autonomous expenditure multiplier in the model.

(ii) If government expenditure increases by 30, what is the impact on equilibrium income?

(iii) If a lump sum tax of 30 is added to pay for the increase in government purchases, how will equilibrium income change?

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Suppose marginal propensity to consume is 0.75 and there is a 20 per cent proportional income tax. Find the change in equilibrium income for the following (a) Government purchases increase by 20 (b) Transfers decrease by 20.

In case of proportional taxes (a) MPC = 0.75 and ΔG = 20 = 50 (b) Transfer decreases by 20 = 60

In case of proportional taxes

(a)

MPC = 0.75 and ΔG = 20

= 50

(b) Transfer decreases by 20

= 60