Question
Suppose that the tax rate (t) is equal to zero, and that this economy's AEF is given by the following: = 30,000 + 0.68 And
Suppose that the tax rate (t) is equal to zero, and that this economy's AEF is given by the following: = 30,000 + 0.68 And suppose that this economy's Desired Consumption (C) function is given by: = 15,000 + 0.8 10. Does this economy engage in trade or not? How do you know? 11. What is this economy's equilibrium National Income (Y)? 12. What the equilibrium Desired Consumption (C) and Desired Savings (S) in this equilibrium? Now suppose that the government imposes a tax rate of 20% (t = 20%). 13. Write down the functions for Desired Consumption (C) and Desired Savings (S) as functions of National Income (Y). [Hint: Here it will be critical to make and use the distinction between National Income (Y) and the Disposable After-tax Income consumers have (YD)] 14. What is the new equilibrium National Income (Y), Desired Consumption (C), and Desired Savings (S) with this tax in place?
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