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12. Consider an economy with a straight line PPF. Show how an increase in government spending...

12. Consider an economy with a straight line PPF. Show how an increase in government spending paid for by an increase in lump sum labor taxes affects outcomes. Do the same for an increase in government spending financed by a proportional income tax. Explain, by add of a graph as well as an explanation, why one of these will have larger welfare effects for the same increase in government spending.

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Answer #1

(A) No affect on ppf curve.

(B) ppf curve will shift towards back because of increase in tax.

Pff werne

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