Question
Say a single family in a small, isolated town receives a $100 payment from the government to help with the Census. The state government requires
Say a single family in a small, isolated town receives a $100 payment from the government to help with the Census. The state government requires all households to pay 20% of all income (including payments from the government) as taxes. Like every other family in the town, their family rule is to save 10% of all after-tax money they receive (included income from their family business or from the government). Whatever is left after savings and taxes is spent at the town market. One day each week, all the town stores (owned and run by families in the community) open for everyone to do that weeks shopping. a) How much will the family receiving the payment (family #1) spend at the market in the first week after their payment? How much will another family (family #2) receive as income from selling to this family? b) If we assume all families wait one week to spend the income from their stores, how much will family #2 spend at family #3s store in week two? Including the government, how much total has been spent over these two weeks? c) Assuming the above pattern continues, how much will family #8 receive in sales receipts? d) After 2 months (8 weeks and thus 8 shopping days), how much total will have been spent because of the initial $100 payment? How much after 16 weeks? e) Do the following to adjust the spending multiplier to account for taxes: Expenditure multiplier = 1 1 (1 tax rate)MPC Based on this new equation, how much should we expect the total additional expenditure to be if time is unlimited when we multiply the $100 exogenous addition to the economy times the expenditure multiplier?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started