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iu.instructure.com Files Quiz (New information for this question...). If the Keynesian consumption function were C 2,000 + 0.8YD , what would the value of the tax multiplier be, and how much would equilibrium Soutput/Sincome,, change if taxes were decreased by 100? O Tax multiplier =-4 ; change in Ye = + 80. 0 Tax multiplier =-4 ; change in Ye . + 400. O Tax multiplier=-5 ; change in Ye-+ 500. 0 Tax multiplier-5 ; change in Ye 200. O Tax multiplier =-3 ; change in Ye = + 300. Question 8 2.5 pts Suppose national income is Y $4,000, household consumption is C $2,900, and savings is S 600. Then, O none of the other options. O taxes are T = $6,500. O taxes are T $3,450. taxes are T = $500. taxes are T $700.

Explanation / Answer

7. Tax multiplier = - MPC/MPS

Here MPC= 0.8 (from the consumption function)

So, MPS= 1 - MPC = 1-0.8= 0.2

Therefore, tax multiplier = - MPC/MPS = - 0.8/0.2 = - 4

Now, tax decrease by $100.

T = - $100

Y = tax multiplier * T = (- 4) *( - 100)= +400

Answer- option 2

8. Household income = consumption + savings = $(2900+600) = $3500

National income = $4000

But the household disposable income = $3500 i.e. they earn $4000 but after paying tax their income is $3500.

Therefore, tax = $(4000 - 3500) = $500

Answer- option 4

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