Assume C=a+bYᵈ;Yᵈ=Y−T;T=T₀+t₁Y;I=Ī;G=Ḡ;Y=C+I+G. C=consumption,Y=income,Yᵈ=disposable…
Substitution gives [1−b+bt₁]Y=a−bT₀+Ī+Ḡ, so ∂Y/∂T₀=−b/(1−b+bt₁). The positive multiplier lacks the −b numerator and the other denominators give the wrong tax-leakage sign.…
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Assume C=a+bYᵈ;Yᵈ=Y−T;T=T₀+t₁Y;I=Ī;G=Ḡ;Y=C+I+G. C=consumption,Y=income,Yᵈ=disposable income,T=taxes,T₀=“Tan,when Y=0”,t₁=marginal tax rate,I=investment,G=government expenditure;bars denote autonomous variables. The “tax multiples” with respect to T₀ is:
Answer and explanation
Correct answer B
Substitution gives [1−b+bt₁]Y=a−bT₀+Ī+Ḡ, so ∂Y/∂T₀=−b/(1−b+bt₁). The positive multiplier lacks the −b numerator and the other denominators give the wrong tax-leakage sign. −b/(1−b+bt₁) : Correct in the comparison explained above.
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UGC NET Economics