Taxmania is a closed economy with government. Aggregate demand is described by Y = C +I + G, where C denotes aggregate consumption, I denotes investment and G denotes government expenditure. Disposable income is denoted by Y,; income in Taxmania is taxed at a rate t, while the government can also deduct taxes as a lump sum T. In particular: C = 40 + 0.8YD Yр 3D (1 — t)Y — Т I = 200 – 6r G = 360 t = 0.25 T = 0 (a) Explain briefly what the IS curve represents and find its equation for Taxmania. (b) Find the multiplier for Taxmania and explain its meaning. What does it depend on? (c) The central bank of Taxmania targets the real interest rate and has set r = 4. Use the IS-LM framework to find the level of output in the economy. Show that Taxmania has a balanced budget.

Taxmania is a closed economy with government. Aggregate demand is described by Y = C +I + G, where C denotes aggregate consumption, I denotes investment and G denotes government expenditure. Disposable income is denoted by Y,; income in Taxmania is taxed at a rate t, while the government can also deduct taxes as a lump sum T. In particular: C = 40 + 0.8YD Yр 3D (1 — t)Y — Т I = 200 – 6r G = 360 t = 0.25 T = 0 (a) Explain briefly what the IS curve represents and find its equation for Taxmania. (b) Find the multiplier for Taxmania and explain its meaning. What does it depend on? (c) The central bank of Taxmania targets the real interest rate and has set r = 4. Use the IS-LM framework to find the level of output in the economy. Show that Taxmania has a balanced budget.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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i) C = 1500 + mpc (Y – tY)ii) I = 800iii) G = 500iv) X – M = 500 – mpi (Y)where:t = the (flat) tax ratempc = the marginal propensity toconsumempi = the marginal propensity toimportsuppose mpc = .80, t = .25, mpi =.2a. solve for the equilibrium outputb. Solve for the (government)spending multiplier.c. When we discussed the multiplier we discussed the impact effect. For example, suppose that G increases by 100to 600 and we assume, as we often do, that firms match the increase in demandby increasing Y by 100. In round two,this is an increase in income of 100 to consumers. Trace out exactly where this100 increase in income goes in the second round and compare to our simpler treatmentwith a closed economy and lump sum taxes. Hint, there are three leakages toaddress(again, please be very specific as to where the 100 increase income‘goes’ in this second round).d. What would happen to the multiplier if the mpi rises to .25. Please explain the intuition.
QUESTION 18 Answer questions 17 and 18 based on the following information: As you know, Flabovia has adopted a Value Added Tax (VAT); the tax rate across the board is 15%. A farmer grows vegetables and sells them to the wholesaler for $1/lb. The wholesaler sells them to the local market for $3/lb. The market then sells them to its customers for $10/lb. Question 18. What is the net tax paid by the wholesaler? O a. $0.15 O b. $0.45 c. $1.15 d. $0.30 O e. None of the Above QUESTION 19 For most companies, Tax Havens offer the benefits/advantages of_ O a. More sales and lower costs of production O b. Easier access to their markets and less regulation O c. Lower taxes and more regulation Od. Less regulation and lower taxes O e. Larger markets and less regulation and
An economy is described by the following equations: C = 500 + 0.85(Y – T), Cis consumption, Y is income and T is taxation M=0.05(1-t)Y imports IP = 1500, planned investment G = 400, government spending T = tY, t = 0.2 is the marginal tax rate X = 1200, X is exports I. The equilibrium level of output for the above economy is 22500 Do NOT include any letters, spaces or symbols (e.g. "$" or ",") in your answer. II. The multiplier for this economy is equal to 6.67 (Round to 2 decimal places) III. Suppose that, in this economy, there is an exogenous decrease in spending of 180. This economy will now be experiencing expansionary gap. Possible answers (write ONE of the following only): "a contractionary" OR "an expansionary". IV. If the potential output of the economy is 10,000, the size of the output gap arising from part III will be Do NOT include any letters, spaces or symbols (e.g. "$" or ",") in your answer. V. If the Okun's Law beta parameter is 2, the cyclical unemployment rate…
Which of the following is true of indirect business taxes? a) They are included in corporate profits. b) They are not included in the GDP. c) They reduce the value of total economic output thereby reducing the value of the GDP. d) They are collected by business firms that act as agents for the government. e) They are the same as personal income taxes.
A simultaneous increase in taxes and increase in government spending would result to the following:
in 2019 fiscal year estimated that Ghanaians saved 20 percent of their disposable income; however, due to overconsumption in the previous year, autonomous saving for 2019 was negative 100 million Ghana cedis. The government of Ghana imposed a lump sum tax of Gh ₡ 20 million. In addition to the lump sum tax the government also took 20 percent of all incomesearned in the economy in the form of proportional tax. The total government expenditure was GH ₡50 million in 2019. Total investment recorded for 2019 was 66 million. (A) Determine the tax function for this economy, derive the consumption function based on the above information and write out the aggregate demand equation (b) Determine the equilibrium consumption and calculate the value of the government expenditure multiplier for this economy and interpret your result (c) Calculate the total tax revenue to the government
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C = 450 + 0.4Y | = 350 G = 150 X = 70 z = 35 + 0.1Y T= 0.15Y Yf = 1550 Q.2.4 Calculate the tax revenue to the government of this country when the economy remains in equilibrium. Q.2.5 Calculate what the new equilibrium income should be if the government of this country decides to cancel all taxes, implying the tax rate would now be 0%. Q.2.6 Before the government decreased the tax rate, how much of government spending was required to bring the economy to full employment?
Q. 33 consider the following model where S is subsidy given to consumers by the government Y =C+I+G C=a+bY y =Y+S-tY I=I+aY G=G+S+tY Where a 9. 10 0.5 20 0.05 100 100 0.1 In equilibrium aggregate consumption (C) is equal to: A. 180 В. 290 С. 220 D. 295 E. none of the above
If the MPC is 0.75, the tax multiplier is Group of answer choices -1.666. -1. -3. -2.5
Currently, marginal tax rates are: greater than in the past. lower than in the past. equal to average marginal tax rates of the past. more unpredictable than in the past.