Discuss the effect of an increase in the tax rate

Reference no: EM13176537

Given the following macroeconomic model:

Y = C + I0 + G0 Equilibrium Income (Y)

C = a + b(Y-T) Consumption with Taxes (T), where: a > 0, 0 < b < 1

T = d + tY Tax function, where: d > 0, 0 < t < 1

Note: I0 = exogenous income, G0 = exogenous govt. spending.

Question: Discuss the effect (increase or decrease) of an increase in the tax rate, t, on the equilibrium income Y* using the effect of increasing t on the equilibrium solution.

Reference no: EM13176537

Questions Cloud

Find the number of months required tp pay off the balance : For the same loan described under Q3, the individual decides that instead of selling the house after the 71st payment, to keep it and shorten the pay off period by increasing the montly payment by $150 each month. What is the number of months re..

What is the total pressure in the flask : A 1.20 gram sample of dry ice is added to a 755mL flask containing nitrogen gas at a temperature of 25.0 degrees Celsius and a pressure of 725 mmHg. The dry ice is allowed to sublime and the mixture is allowed to return to 25.0 degrees Celsius. wh..

What is the charge on magnesium iodide : What is the charge on magnesium iodide? What does the charge on the magnesium ion have to do with the number of valence electrons that an atom of magnesium has?

Does it depend on the identity of the outer atom : If all of the electron groups around a single central atom are bonding, and the same outer atom is bonded to the central atom in each case, is the molecule polar, nonpolar, or does it depend on the identity of the outer atom?

Discuss the effect of an increase in the tax rate : Discuss the effect (increase or decrease) of an increase in the tax rate, t, on the equilibrium income Y* using the effect of increasing t on the equilibrium solution.

Peacekeeping activities : You are a magazine journalist assigned to cover the peacekeeping activities in Iraq. You have agreed to certain restrictions to enable you to have embedded access and to travel along with military patrols.

What external pressures have moved mainstream medicine : What external pressures have moved mainstream medicine to accept alternative therapies? Have any alternative therapies been proven to work as well as standard treatments? Support your answer with information from the reading materials and/or inter..

Explain necessary conditions for positive equilibrium prices : What are the necessary conditions for positive equilibrium prices and quantities? (b) What is the economic interpretation of the parameter "f"? (c) What will be effect (increase or decrease) of an increase in exogenous income on P*, the equilibrium p..

Two stars ub a binary ststem orbit around a common point : Two stars ub a binary ststem orbit around a common point that is

User Account

All Pages