You are given data on the following variables in an economy:Government spending 300Planned investment 200Net exports 50Autonomous taxes 250Income tax rate 0.1Marginal propensity to consume 0.5 Use the data above to answer the following questions.Consumption (C) is 600 when income (Y) is equal to 1500. Solve for autonomousconsumption. Solve for the equilibrium level of output in the following two scenarios:there isan income tax t=0.1,there is no income tax in the economy.Denote these two variablesby and respectively. In the economy with an income tax of 10%, what is the budget balance of thegovernment?Solve for the change in net exports that would bring the equilibrium output levelin the economy with the income tax to the level of that you found in part b. Specify boththe magnitude of the change and whether it is an increase or a decrease. What would be thenew level of net exports after this change?Suppose that we would like to achieve the same goal (as in part d) by changing thelevel of autonomous taxes instead of that of net exports. So, net exports remain at 50 andthe level of autonomous taxes changes instead. Find the necessary magnitude of the changeand specify whether autonomous taxes would have to increase or decrease. What would bethe new level of autonomous taxes that accomplishes this goal? With the aid of a well labeled diagram, explain the J – curve phenomenon

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Answered: Consumption (C) is 600 when income (Y)…

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter18: The Keynesian Model

Section: Chapter Questions

Problem 9SQP

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You are given data on the following variables in an economy:

Government spending 300

Planned investment 200

Net exports 50

Autonomous taxes 250

Income tax rate 0.1

Marginal propensity to consume 0.5

Use the data above to answer the following questions.

Consumption (C) is 600 when income (Y) is equal to 1500. Solve for autonomousconsumption.
Solve for the equilibrium level of output in the following two scenarios:
1. there isan income tax t=0.1,
2. there is no income tax in the economy.

Denote these two variablesby and respectively.

In the economy with an income tax of 10%, what is the budget balance of thegovernment?
Solve for the change in net exports that would bring the equilibrium output levelin the economy with the income tax to the level of that you found in part b. Specify boththe magnitude of the change and whether it is an increase or a decrease. What would be thenew level of net exports after this change?
Suppose that we would like to achieve the same goal (as in part d) by changing thelevel of autonomous taxes instead of that of net exports. So, net exports remain at 50 andthe level of autonomous taxes changes instead. Find the necessary magnitude of the changeand specify whether autonomous taxes would have to increase or decrease. What would bethe new level of autonomous taxes that accomplishes this goal?

With the aid of a well labeled diagram, explain the J – curve phenomenon

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