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We have been assuming that the fist policy variable T is independent of the level of income. In the real world, however, this is not the case. Taxes typically depend on the level of income, so tax revenue tends to be higher when income is higher. IN this problem, we examine how this automatic response of taxes can help reduce the impact of changes in autonomous spending on output. Consider the following model of the economy, where G and I are both constant. C = c0+ c1YD T = t0+ t1Y YD= Y - T a.Is t1 greater or less than one? Explain. b.Solve for equilibrium output. c.What is the multiplier? Does the economy respond more to changes in autonomous spending when t1 is zero or when t1 is positive? Explain.
Make sure you give complete definitions and explanations for this set of questions. When dealing with thedecrease in income, you will want to talk about the effects on thebudget constraint and the consumption bundle of the consumer.
aggregate outputincome consumption planned investment2000 2100 3002500 2500 3003000 2900 3004000 3700 3004500 4100
Using the AD-AS model explain how the economy will adjust in the long run. Should the government undertake any proactive fiscal or monetary policy in this situation?
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pollution is considered baby most negative externality. some ecinomists would like to see the vista of these burdens
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