Assuming an economy can be represented by the following simplified model (all values are measured in $billion):
C=200+0.5Yd, I=100, G=150, TP=100, X=M, Yd=Y-TP
Please discuss the impacts of a $20 billion tax (TP decrease by 20) cut on equilibrium Y (GDP) and C (personal consumption).© BrainMass Inc. brainmass.com October 25, 2018, 5:01 am ad1c9bdddf
Because Yd = Y - TP, decreasing TP by 20 causes Yd to increase by 20.
Let C1 be consumption before the tax cut ...
Given equations for consumption (C), disposable income (Yd), personal taxes (TP), government spending (G), investment (I) and net exports (NX), this solutions shows the effect of a $20 billion tax cut on C and on Gross Domestic Product (GDP).
Deficit Spending and the Public Debt
Suppose that Congress enacts a lump-sum tax cut of $750 billion. The marginal propensity to consume is equal to 0.75. If Ricardian equivalence holds true, what is the effect on equilibrium real GDP? On saving?View Full Posting Details