Macroeconomics 13th Edition by William Baumol ,Alan Blinder

Exercise 16

Consider an economy similar to that in the preceding question in which investment is also $200, government purchases are also $500, net exports are also $30, and the price level is also fixed. But taxes now vary with income, and as a result, the consumption schedule looks like the following:

Find the equilibrium graphically. What is the marginal propensity to consume What is the tax rate Use your diagram to show the effect of a decrease of $60 in government purchases. What is the multiplier Compare this answer to your answer to Test Yourself Question 1. What do you conclude