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Unformatted text preview: That is, disposable income to be consumed is smaller than in the case that we only have lump-sum taxes. Therefore, the increase in consumption in every round and the subsequent income increase are smaller than they would have been in the case of lump-sum taxes. Thus, the final increase in equilibrium income is smaller when we have marginal income taxes. e. Assume that we have lump-sum taxes instead of marginal income taxes. a. Increasing G and T by the same amount. b. They are equal. Problem 2. (In your class notes)...
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- Fall '02
- Macroeconomics, Consumption function, government spending, Government Spending Multiplier