The last two are incorrect 051 pts PartialQuestion 1 In this

The last two are incorrect

0.5/1 pts PartialQuestion 1 In this question we want to figure out how different MPC values and tax rates affect the value of the expenditure multiplier, beginning with what we had in the class. \"Tax rate\" in this question means the percentage of real GDP that the government collects n taxes. As in the class, let\'s denote the tax rate by letter \"t\" First, suppose that MPC-0.90 (Americans spend 90% of their additional real disposable income on consumption) and that the tax rate is zero (the government does not tie the amount of taxes collected to the level of real GDP). Then: Multiplier (When MPC 0.90 and t - 0)10.00 If instead we had MPC 0.80 and the tax rate was still zero, we would have: Multiplier (When MPC 0.80 and t 0)5.00 You see how MPC affects the value of the multiplier. Now let\'s keep MPC at 80% and change the tax rate to see how the expenditure multiplier changes. Suppose that the government imposes a tax rate of 6.25% on real GDP (t = 0.0625). Then: Multiplier (when MPC-080 and t-6.25%-64.00 suppose the government becomes greedy and increases the tax rate of 25% ( t-0.25). Then: Multiplier (when MPC-080 and t-25.00%)- 16.00

Solution

3.Multiplier=1/1-c(1-t)

Where c is MPC and t is tax rate.

c=.8

t=.0625

K=1/1-.8(1-.0625)

K=1/.25=4

Multiplier=4.

4.t=.25

K=1/1-.8(1-.25)

K=1/.4=2.5

Multiplier=2.5

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