The economy is described by the following functions: C = Č+c•YD Tx t.Y %3D Tr Tr I %3D G = Ğ Nx = Nx where t is the tax rate. Note the difference with the setup derived in class: here, the amount of taxes collected depends positively on the gross income. • Q1. Express equilibrium output as function of other variables • Q2. Find the multiplier associated with government purchases. How does this multiplier compare with that obtained in class (i.e. for a model with lump-sum taxes?)

The economy is described by the following functions: C = Č+c•YD Tx t.Y %3D Tr Tr I %3D G = Ğ Nx = Nx where t is the tax rate. Note the difference with the setup derived in class: here, the amount of taxes collected depends positively on the gross income. • Q1. Express equilibrium output as function of other variables • Q2. Find the multiplier associated with government purchases. How does this multiplier compare with that obtained in class (i.e. for a model with lump-sum taxes?)

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 3TY

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