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    Effects Of Imposing A Progressive Tax

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    Impose a progressive tax such that the tax rate is 0 percent when GDP is $100, 5 percent at $200, 10 percent at $300, 15 percent at $400 and so forth. Determine and graph the new consumption schedule, noting the effect of this tax system on the MPC and the multiplier.

    GDP (billions)....................Consumption (billions)
    .......100..........................................120
    .......200..........................................200
    .......300..........................................280
    .......400..........................................360
    .......500..........................................440
    .......600..........................................520
    .......700..........................................600

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    Solution Preview

    Please see the attached file.

    The tax rate is given in column E. We can calculate the new level of consumption by ...

    Solution Summary

    Effects of imposing a progressive tax on economies of different marginal propensities to consume.

    $2.49

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