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3. Although our development of the Keynesian cross assumed that taxes are a fixed amount, most countries levy some taxes that rise automatically with national
3. Although our development of the Keynesian cross assumed that taxes are a fixed amount, most countries levy some taxes that rise automatically with national income (Examples in the US are the income tax and payroll tax). Let's represent a tax system by writing tax revenue as: T = T + tY, where T and t are parameters of the tax code. The parameter t is the marginal tax rate: if income rises by 16, taxes rise by te. a. Identify under which tax systems there are discretionary fiscal policies? And automatic stabilizers fiscal policies? b. How does this tax system change the way consumption responds to changes in GDP? That is, define the consumption function. c. In the Keynesian cross, how does this tax system alter the government- purchase multiplier? d. How does this tax system alter the slope of the IS curve
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