SELECT * FROM question_mgmt as q WHERE id=5435 AND status=1 SELECT id,question_no,question,chapter FROM question_mgmt as q WHERE courseId=3 AND subId=59 AND chapterId=606 and ex_no='1' AND status=1 ORDER BY CAST(question_no AS UNSIGNED)

Question:

Suppose marginal propensity to consume is 0.75 and there is a 20 per cent proportional income tax. Find the change in equilibrium income for the following (a) Government purchases increase by 20 (b) Transfers decrease by 20.

Answer:

In case of proportional taxes

∆Y =

(a) MPC = 0.75 and ∆G = 20

= = 50

(b) Transfer decrease by 20

∆Y =
= = 60


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