(The Multiplier with a Proportional Income Tax) Answer the following questions using the following data, all in billions. Assume an MPC of 0.8.
Disposable Income Consumption
|
$ 0
|
$ 500
|
|
500
|
900
|
|
1,000
|
1,300
|
|
1,500
|
1,700
|
a. Assuming that net taxes are equal to $200 billion regardless of the level of income, graph consumption against income (as opposed to disposable income).
b. How would an increase in net taxes to $300 billion affect the consumption function?
c. If the level of taxes were related to the level of income (i.e., income taxes were proportional to in- come), how would this affect the consumption function?