Question

Assume that, without taxes, the consumption schedule of an economy is as follows GDP, Billions Consumption, Billions $0 100 200 300 $40 120 200 280 360 440 520 600 400 500 600 700 a. What is the value of the MPC?

Answer 1

Assume that, without taxes, the consumption schedule of an economy is as follows: GDP, Billions (S Consumption, Billions (S) 40 100 120 200 200 300 280 400 360 440 500 600 520 700 600 a. Marginal Propensity to Consume (MPC) is the proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it. From the consumption schedule given abeue MPC 80/100 or 0.80 because consumption changes by 80 when GDP changes by 100 The consumption schedule has been drawn below: Consumption, Billions ($) 700 600 600- 520. 500 440 400 360 300 280 200 200 100 120 аПП 100 300 500 Б00 700

AutoSave Of Book3 Excel Das, Samiha (IMKOR) lell me what you want to do File Formulas Help Home Insert Page Layout Data Review View Share R39 A C G M N C C 30 b. Assume now a lump-sum tax system is imposed such that the government collects $10 billion in taxes at all levels The after tax consumption is added in the table below: GDP, BIlllons (S) f GDP 31 32 Consumption, Lump-Sum tax, DI after tax Billions ($) Billions Consumption after tax, Billions (S) (GDP - Tax) 33 31 10 192 10 200 190 36 00 10 290 37 300 80 272 360 390 352 8 400 10 500 39 490 д4о 10 432 590 600 40 520 10 512 41 700 600 10 690 592 Before we introduced the lumpsum tax GDP-DI (since we have no taxes). 4 Once we introduced Jumpsum tax for each level of GDP, the DI will fall short of GDP by the amount the tax So, DI will fall short by 10 billion This decline in DI reduces both C and S at each level 5 GDP 46 The MPC and MPS determine the declines in C and S. 4/ t every level by reducing each level of C by 0.8*10-8. 48 Since, MPC 0.8, hence we calculate C The new after tax consumption schedule has been calculated in the above table for cach lIevel of GDP. 51 Let us naw compare the MPC and multiplier with that of the pre-tax consumption schedule 52 From the after tax consumption schedule, MPC 80/100 or 0.80 because consumption changes by 80 when GDP changes by 100. MPS 1-0.8 0.2 The multiplier 1/MPS 1/0.2 = 5 The MPC and multiplier are the same for both C-schedules since the slope of the Chas not changed (we only have a shift). 53 54 55 56 57 Sheet1 Sheet2 Sheet3 Reary +900% ENG 01:32 х‑ C Type here to search US 19-07-2019