MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
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Chapter 11, Problem 17SQ
To determine
The tax revenue when the tax rate is 100 percent.
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Suppose that the typical Canadian spends 80 percent of their income. There is an income tax rate is 15% per period. If the government wanted to see the effect of a tax cut of $50 billion, what would be the tax multiplier that they would have to use.
On average, does an increase in taxes raise or lower real GDP? If taxes as a percent of GDP go up 1 percent, by how much does real GDP change? Are the decreases in real GDP caused by tax increases temporary or permanent? Does the intention of a tax increase matter?
The Social Security system levies a tax on workers and pays benefits to the elderly. Suppose that congress increases both the tax and the benefits. For simplicity, assume that the Congress announces that the increases will last for one year only.
a. How do you suppose this change would affect the economy? (Hint: Think about the marginal propensities to consume of the young and the old.)
b. Does your answer depend on whether generations are altruistically linked?
Chapter 11 Solutions
MACROECONOMICS FOR TODAY
Ch. 11.3 - Prob. 1YTECh. 11 - Prob. 1SQPCh. 11 - Prob. 2SQPCh. 11 - Prob. 3SQPCh. 11 - Prob. 4SQPCh. 11 - Prob. 5SQPCh. 11 - Prob. 6SQPCh. 11 - Prob. 7SQPCh. 11 - Prob. 8SQPCh. 11 - Prob. 9SQP
Ch. 11 - Prob. 10SQPCh. 11 - Prob. 11SQPCh. 11 - Prob. 1SQCh. 11 - Prob. 2SQCh. 11 - Prob. 3SQCh. 11 - Prob. 4SQCh. 11 - Prob. 5SQCh. 11 - Prob. 6SQCh. 11 - Prob. 7SQCh. 11 - Prob. 8SQCh. 11 - Prob. 9SQCh. 11 - Prob. 10SQCh. 11 - Prob. 11SQCh. 11 - Prob. 12SQCh. 11 - Prob. 13SQCh. 11 - Prob. 14SQCh. 11 - Prob. 15SQCh. 11 - Prob. 16SQCh. 11 - Prob. 17SQCh. 11 - Prob. 18SQCh. 11 - Prob. 19SQCh. 11 - Prob. 20SQ
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- Solve for the maximum amount of revenue the government can raise from this tax. Hint: the tax rate will be a fraction between 0 and 1. In general, what explains the shape of the Laffer curve?arrow_forwardIn the United States, the various state governments almost all have laws that require them to balance their budgets, every single year. Such a law would require them to ___during a ____ , resulting in a ____ recession. recession ,boom ,bigger, smaller, decrease taxes, increase taxesarrow_forwardThe Laffer curve illustrates the concept that a.an increase in marginal tax rates will always cause tax revenues to decrease. b.when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues to increase. c.when marginal taxes are quite low, an increase in the tax rate will probably cause tax revenues to decline. d.an increase in marginal tax rates will always cause tax revenues to increase.arrow_forward
- True or False? Explain: The multiplier effect is likely to be greatest when the government spending is targeted at the poorest The poor will always spend most of the money they get as benefits as soon as possible Multiplier effect does not depend on who receives the money The richest people will spend a larger proportion of their money than the poorestarrow_forwardEconomist Arthur Laffer famously pointed out that, in some cases, income tax revenue can actually go up when tax rates go down. Why might this be the case?arrow_forwardA fiscal stimulus was initiated by President Obama in response to the economic downturn of 2008-2009. At that time, the president’s economists estimated the multiplier to be a. 2.4 for government purchases and 1.4 for tax cuts. b. 3.2 for government purchases and 2.0 for tax cuts. c. 1.6 for government purchases and 0.4 for tax cuts. d. 1.6 for government purchases and 1.0 for tax cuts.arrow_forward
- A tax rebate that returns a certain amount of money to taxpayers can have a total effect on the economy that is many times this amount. In economics, this phenomenon is called the multiplier effect. Suppose, for example, that the government reduces taxes so that each consumer has $2000 more income. The government assumes that each person will spend 70% of this (= +1400). The individuals and businesses receiving this $1400 in turn spend 70% of it (= +980), creating extra income for other people to spend, and so on. Determine the total amount spent on consumer goods from the initial $2000 tax rebate.arrow_forwardY C I G X $ 100 $ 120 $ 20 $ 30 $ 10 $ 300 $ 300 $ 20 $ 30 - $ 10 $ 500 $ 480 $ 20 $ 30 - $ 30 $ 700 $ 660 $ 20 $ 30 - $ 50 14.If government spending increases by $ 15, what is the new equilibrium level of the real GDP? If government spending increases by $ 15 then to find the new equilibrium I can use the recessionary GAP formula Recessionary GAP = GDP Gap / Spending Multiplier (5) 15 = GDP Gap (5) 5 75 = GDP Gap GDP Gap + Old equilibrium level of the real GDP =…arrow_forwardis it always possible to increase tax revenues by increasing tax rates?(please draw therelevant graph(s))arrow_forward
- consumers increased consumption by a relatively small amount in 2008 and 2009 because thet believe the tax cuts temporary. true or falsearrow_forwardThis question is complete. The graph provides all the information. Use the graph to the right to answer the following question. Which of the following is not true according to the graph? A) Taxpayers in the top 1% of income levels paid more money in income taxes than they would have without the tax cuts. B) The treasury estimate if the share of tax cuts had not been enacted is 34%. C) Taxpayers in the top 1% of income levels paid a greater percentage of total federal income tax revenue than they would have without the tax cuts.arrow_forwardBy using graphs, show and explain how an increase in tax rates can increase dead-weight loss anddecrease the government revenue after a pointarrow_forward
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