I need the answer for question #2 part e to compare against mine. Use the Keynes
ID: 1220311 • Letter: I
Question
I need the answer for question #2 part e to compare against mine.
Use the Keynesian cross model to predict the impact on equilibrium GDP of the following. In each case, state the direction of the change and give a formula for the size of the impact. An increase in government purchases An increase in taxes Equal-sized increases in both government purchases and taxes Launch Pad In the Keynesian cross model, assume that the consumption function is given by G = 120 + 0.8 (Y - T). Planned investment is 200: government purchases and taxes are both 400. Graph planned expenditure as a function of income. What is the equilibrium level of income? If government purchases increase to 420. What is the new equilibrium income? What is the multiplier for government purchases? What level of government purchases is needed to achieve an income of 2,400? (Taws remain at 400.) What level of taxes is needed to achieve an income of 2.400? (Government purchases remain at 400.) Although our development of the Keynesian cross in this chapter assumes that taxes are a fixed amount, most countries levy some taxes that rise automatically with national income. (Examples in the United States include the income tax and the payroll tax.) Let's represent the tax system by writing tax revenue as T = T bar + tY, where T and t are parameters of the tax code. The parameter I is the marginal tax rate: if income rises by SI. taxes rise by t times $1. How does this tax system change the way consumption responds to changes in GDP?Explanation / Answer
(2) (e)
If required tax level be T, then in equilibrium:
Y = C + I + G
Y = 120 + 0.8(Y - T) + 200 + 400
2,400 = 120 + 0.8(2,400 - T) + 600
(2,400 - 720) = 1,920 - 0.8T
1,680 = 1,920 - 0.8T
0.8T = 1,920 - 1,680 = 240
T = 240 / 0.8 = 300
Required level of tax is 300.