138 Constant Prices Government Consumption Investmen Total purchases Exports mports Disposable Spending IM Spending ncome C +14G+(X -MM) Output) Output Taxer 1.800 1.150 1,350 6.600 1,500 1,150 1,350 9,500 9,500 1,675 7,825 1,800 6,750 1,500 1,150 1,350 9.750 9,750 1,738 8.013 1.800 1.500 10,000 1,800 8,200 6,900 10,000 1:80 1,150 1,350 7,050 1.500 1,150 1,350 10,250 10,250 1,863 8.388 1,800 7,200 1,500 1,150 1,350 10,500 10,500 1.925 8,575 7,350 1,500 1.800 1,350 10,750 10,750 1,988 8,763 1,150 1.500 1,800 11,000 2.050 8,950 7,500 11,000 TABLE 10-1 tax Table 10-1 has data on GDP, taxes, disposable income, consumption, investment, government 10-3 spending, exports, and imports. This table is similar to Table 25-1 except that here taxes vary with income while in Table 25-1 they did not. Alternatively one could say that Table 10-1 considers an No economy with variable taxes while Table 25-1 assumed that taxes were fixed taxes. LOV its I. Complete the column for total spending to determine the equilibrium level of GDP $ As . Assume now that government purchases decrease by $200 to $650 as shown in Table 10-7 Following the decrease in government purchases, the new equilibrium level of income is $ As Constant Prices Income Disposable Investment Government Total (Output) Taxes Income Purchases Exports Imports Spending G IM C IG + ( X - IM) 9,500 1,675 7,825 6,600 1,500 1,600 1,150 1,350 9,750 1,738 8,013 6,750 1,500 1,600 1,150 1,350 10,000 1,800 8.200 6.900 1,500 1,600 1,150 1,350 10.250 1,863 8.388 7,050 1,500 1,600 1.150 10.500 1,350 1,925 8,575 7,200 1,500 1,600 1,150 10,750 1,350 1,988 8,763 7,350 1,500 1.600 11,000 2.050 8.950 1,150 1,350 7.500 L.500 1.600 1,150 TABLE 10-2 1,350 3. The multiplier for this decrease in government purchases is . (This multiplier can be purchases.) computed by dividing the change in the equilibrium level of income by the change in government Now consider a subsequent across-the-board reduction in income taxes of $250. Table 10-3 shows the new relevant data for national income, taxes, disposable income, and consumption. The new equilibrium level of income after the reduction in taxes is $_ 5. The multiplier for the across-the-board change in taxes is 6. Why did it take a larger reduction in taxes to restore GDP to its initial level following the reduc tion in government purchases? Question 4 asked you to analyze the impact of a reduction in income taxes. Was this reduction in taxes self-financing? That is, was the increase in GDP stimulated by the reduction in taxes lange enough so that on balance there was no decrease in government tax revenues? (Be sure to compare