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Effects Of Imposing A Progressive Tax

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.

$2.19