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Explain the effect of an increase in income tax rate

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Reference no: EM132640171

1. Carefully explain the effect of an increase in income tax rate on the equilibrium GDP in the Keynesian income-expenditure model. In your answer, carefully show the new equilibrium and explain the adjustment to the new equilibrium.

2. Suppose commercial Bank A receives a new $100 deposit.

a. What will be the total change in money supply as the result of this increase in deposits? Explain in detail.

b. Discuss any ONE reason why the total change in money supply can be less that your answer in part a). (Think about what does the change in money supply depends on).

Reference no: EM132640171

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