Bundle: Exploring Macroeconomics, Loose-leaf Version, 7th + LMS Integrated MindTap Economics, 1 term (6 months) Printed Access Card
7th Edition
ISBN: 9781305784802
Author: Robert L. Sexton
Publisher: Cengage Learning
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Question
Chapter 16, Problem 13P
To determine
To explain:
The reason for decrease in tax rate increases AS as well as AD, whereas an increase in government purchase will increase AD but not AS.
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Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?
If there is an increase in government spending how can you solve the change in equilibrium Y? What's the formula?
Our economics have redone their calculations. They now estimate that citizensin our country have an MPC of 0.60. We can fix the problem by decreasing GDP by 250. How much should we increase taxes?
Chapter 16 Solutions
Bundle: Exploring Macroeconomics, Loose-leaf Version, 7th + LMS Integrated MindTap Economics, 1 term (6 months) Printed Access Card
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- Economist 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_forwardExercise D24 Compare two policies: a tax cut on income or an increase in government spending on roads and bridges. What are both the short-term and long—term impacts of such policies on the economy?arrow_forwardhich of the following statements regarding a Laffer curve is the most plausible? Reducing a high tax rate will have the same effect on tax revenue as reducing a low tax rate. a. b. C. d. Reducing a tax rate can never increase tax revenue. Reducing a high tax rate is less likely to increase tax revenue than is reducing a low tax rate. Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate.arrow_forward
- 14. The economy is experiencing a $225 million inflationary gap. If the government 02 decided to solve this macroeconomic disequilibrium using a change in taxes, would you recommend an increase or decrease in taxes? If the MPC=0.9, what magnitude of tax change would be appropriate?arrow_forwardConsumer saves 15% of additional income, spends 65% of income on goods and services and spends 20% on imports. What is the tax multiplier?arrow_forward
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