(a) Derive tax multiplier. (b) Suppose in an economy, the following data is given; C = 200 + b(Y - T), T = 500+tYI = 100, G = 500, X = 100, M =…
BBS Macroeconomics for Business · 2078 · Solved Question with Answer
(a) Derive tax multiplier.
(b) Suppose in an economy, the following data is given;
C = 200 + b(Y - T), T = 500+tYI = 100, G = 500, X = 100, M = 50+0.1YThe marginal propensity to consume (b) = 0.7 and income tax rate (t) = 0.20(i) Find the equilibrium level of income.(ii) What will be the effect on equilibrium income when government expenditure increase by Rs. 50 billion and the tax rate decreases by 5%