Finding change in lump sum taxes to boost real gdp

Reference no: EM1313793

Suppose that the economy is short of its full-employment (potential) level of GDP, assumed to be $14,000 billion, by $500 billion.

a. Assume that the marginal propensity to consume out of disposable income equals 0.8 and the tax rate, t, equals .20. Also assume that investment, government spending, exports and imports do not vary with income. Now suppose that the government wants to boost real GDP to its full employment level by changing lump sum taxes. How large a change in lump-sum taxes, TA, is required to do so? Show your work.

b. Next suppose that there is one change in the conditions stipulated in part a: Assume that imports vary positively with income and that the marginal propensity to import out of national income is 0.3. How large a change in lump sum taxes will it take to boost real GDP to its full employment level in this case? Show your work and explain the reason your answer to b is different than your answer to a.

Reference no: EM1313793

Questions Cloud

Computation of payback period : Computation of Payback period and what is the payback period for a $20,000 project expected to return $6,000 for the first two years and $3,000

Reserve ratios and level of deposits : Assuming individuals hold no cash (all cash is in bank vaults as reserves), calculate the simple money supply from the following reserves requirements and deposits in the systems. 5 Points each, 30 points subtotal

If the manager of impact industries decides to produce : If the manager of impact industries decides to produce 240 units, illustrate what will the long-run total cost also long-run average cost of producing 180 units.

Income statements and the retained earnings statement : Purpose two income statements and the Retained Earnings Statement. Use the single-step format and multiple-step income formats and income statement in the period

Finding change in lump sum taxes to boost real gdp : Suppose that the economy is short of its full-employment (potential) level of GDP, assumed to be $14,000 billion, by $500 billion.

Investment analysis through incremental analysis : Investment Analysis through Incremental Analysis and compute the incremental net income of the investment for each year

Simple regression analysis which demand increases : Finds in a simple regression analysis which demand increases with an increase in advertising also falls as advertising expenditures are reduced.

How much co2 (mt) does the plant produce annually : Calculate the total cost ($/kWh) of electricity delivered to the grid including fuel cost and debt charge with O&M of 5% added to the total.

Designing a self-selection mechanism : As the manager of Pelican Point Financial Group, you are unable to determine whether any given individual is a high or low volume transaction investor. Design a self-selection mechanism that permits you to identify each type of investor.

User Account

All Pages