The main difference between variable taxes and fixed taxes is that unlike fixed taxes, variable taxes . The following graph shows the consumption schedule for an economy with a given level of taxes. Suppose the government implements a tax increase through a fixed tax. Use two green points (triangle symbol) to connect the two black points (plus symbols) representing the consumption schedule after the change in taxes. Hint: The new consumption schedule must pass through one point on the left and one point on the right. The blue line on the next graph represents the original total expenditure line for this economy before the change in tax structure. Use the new consumption line you just plotted to calculate the new total expenditure at two levels of real GDP and fill in the following table. GDP level Total Expenditure (Billions of dollars) (Billions of dollars) 10 90 Use the green points (triangle symbols) to draw the new total expenditure line on this graph given the tax increase through a fixed tax previously discussed and subsequent changes in the consumption schedule shown on the preceding graph. Suppose that the government also considered a variable tax hike and that the resulting consumption schedule would have also passed through one black point (plus symbols) on the left and one black point on the right on the first graph (though not necessarily the same points as the consumption schedule resulting from the tax increase through a fixed tax). On the first graph, use two purple points (diamond symbol) to connect the two black points (plus symbols) representing the consumption schedule that would result from a tax increase through a variable tax. (Hint: As before, the consumption schedule must pass through one point on the left and one point on the right.) On the second graph, use the purple points (diamond symbols) to draw the total expenditure line that would result from a tax increase through a variable tax indicated on the top graph. True or False: The change in equilibrium output is smaller when the government implements the variable tax hike. True False

The main difference between variable taxes and fixed taxes is that unlike fixed taxes, variable taxes . The following graph shows the consumption schedule for an economy with a given level of taxes. Suppose the government implements a tax increase through a fixed tax. Use two green points (triangle symbol) to connect the two black points (plus symbols) representing the consumption schedule after the change in taxes. Hint: The new consumption schedule must pass through one point on the left and one point on the right. The blue line on the next graph represents the original total expenditure line for this economy before the change in tax structure. Use the new consumption line you just plotted to calculate the new total expenditure at two levels of real GDP and fill in the following table. GDP level Total Expenditure (Billions of dollars) (Billions of dollars) 10 90 Use the green points (triangle symbols) to draw the new total expenditure line on this graph given the tax increase through a fixed tax previously discussed and subsequent changes in the consumption schedule shown on the preceding graph. Suppose that the government also considered a variable tax hike and that the resulting consumption schedule would have also passed through one black point (plus symbols) on the left and one black point on the right on the first graph (though not necessarily the same points as the consumption schedule resulting from the tax increase through a fixed tax). On the first graph, use two purple points (diamond symbol) to connect the two black points (plus symbols) representing the consumption schedule that would result from a tax increase through a variable tax. (Hint: As before, the consumption schedule must pass through one point on the left and one point on the right.) On the second graph, use the purple points (diamond symbols) to draw the total expenditure line that would result from a tax increase through a variable tax indicated on the top graph. True or False: The change in equilibrium output is smaller when the government implements the variable tax hike. True False

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter9: Aggregate Demand

Section: Chapter Questions

Problem 5.11P

See similar textbooks

Related questions

Question

The main difference between variable taxes and fixed taxes is that unlike fixed taxes, variable taxes .

The following graph shows the consumption schedule for an economy with a given level of taxes. Suppose the government implements a tax increase through a fixed tax.

Use two green points (triangle symbol) to connect the two black points (plus symbols) representing the consumption schedule after the change in taxes.

Hint: The new consumption schedule must pass through one point on the left and one point on the right.

The blue line on the next graph represents the original total expenditure line for this economy before the change in tax structure.

Use the new consumption line you just plotted to calculate the new total expenditure at two levels of real GDP and fill in the following table.

GDP level	Total Expenditure
(Billions of dollars)	(Billions of dollars)
10
90

Use the green points (triangle symbols) to draw the new total expenditure line on this graph given the tax increase through a fixed tax previously discussed and subsequent changes in the consumption schedule shown on the preceding graph.

Suppose that the government also considered a variable tax hike and that the resulting consumption schedule would have also passed through one black point (plus symbols) on the left and one black point on the right on the first graph (though not necessarily the same points as the consumption schedule resulting from the tax increase through a fixed tax).

On the first graph, use two purple points (diamond symbol) to connect the two black points (plus symbols) representing the consumption schedule that would result from a tax increase through a variable tax. (Hint: As before, the consumption schedule must pass through one point on the left and one point on the right.)

On the second graph, use the purple points (diamond symbols) to draw the total expenditure line that would result from a tax increase through a variable tax indicated on the top graph.

True or False: The change in equilibrium output is smaller when the government implements the variable tax hike.

True

False

Hint: The new consumption schedule must pass through one point on the left and one point on the right.
50
+
Consumption with Tax Increase through a Fixed Tax
40
30
Consumption with Tax Increase through a Variable Tax
+
10
20
40
60
80
100
REAL GDP (Billions of dollars)
REAL CONSUMERSPENDING (Billions of dollars)
+ + + O + 4 +

100
45-degree line
06
TE with tax increase through a fixed tax
80
Total Expenditure
70
60
TE with tax increase through a variable tax
50
40
30
20
10 A
10 20
30
40
50
60.
70
80
90
100
REAL GDP (Billions of dollars)
REALEXPENDITURE (Billions of dollars,

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.