| Question |
Assume that, without taxes, the consumption schedule of an economy is as follows: GDP, Consumption, Billions Billions $100 ………. $120 200 ………. 200 300 ………. 280 400 ………. 360 500 ………. 440 600 ………. 520 700 ………. 600 a. Graph this consumption schedule and determine the MPC. b. Assume now that a lump-sum tax is imposed such that the government collects $10 billion in taxes at all levels of GDP. Graph the resulting consumption schedule and compare the MPC and the multiplier with those of the pretax consumption schedule. |
