{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

section+14 - ECON 101B Section 14 Handout Date Question 1...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
ECON 101B: Section 14 Handout Date: 03/04/2011 Question 1 Use the Keynesian cross to predict the impact of 1. An increase in government purchases. 2. An increase in taxes. 3. An equal increase in government purchases and taxes Question 2 Although our development of the Keynesian cross in this chapter assumes that taxes are a °xed amount, in many countries (including the United States) taxes depend on income. Let±s represent the tax system by writing tax revenue as T = ° T + tY where ° T and t are parameters of the tax code. The parameter t is the marginal tax rate: if income rises by $1, taxes rise by t ° $1. 1. How does this tax system changes the way consumption responds to changes in GDP? 2. In the Keynesian cross, how does this tax system alter the government-purchases multiplier? 3. In the IS-LM, how does this tax system alter the slope of the IS curve? Question 3 Consider the impact of an increase in thriftiness in the Keynesian cross. Suppose the consumption function is C = ° C + c ( Y ± T ) ; where ° C
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern