can I get help with 1 and 2 stri ith the views -sate Progressive Keynesians Emph

Question

can I get help with 1 and 2

stri ith the views -sate Progressive Keynesians Emphasize cutting taxes and otherwise seeking to raise incomes for the poor and working cl both for equity reasons, and also due to the poor having a higher marginal propensity to asses, consume Problem: How would a tax cut of $100 bil differ in its initial effect on disposable income if the MPC were 0.5 (say, for the rich) versus 0.9 (say, for the poor)? Conservative Keynesians Emphasize cutting taxes for the rich, based on the idea that wealth with "trickle down." Based on this idea, tax cuts for the wealthy lead to higher saving, greater investment, and therefore greater investment. Problem How would a tax cut of $100 bil affect investment spending assuming the change in investment equals the change in savings, and the MPC is 0.5?

Explanation / Answer

1. When MPC = 0.5;

Change in Y = - MPC x Change in taxes / (1 - MPC)

Change in Y = - 0.5 x (-100)/(1 - 0.5) = $ 100

Implies, income increases by $ 100

When MPC = 0.9;

Change in Y = - 0.9 x -100/(1 -0.9) = 90/0.1 = $ 900

Income increases by $ 900.

2. Change in Y = - 0.5 x - 100/(1 - 0.5) = 100

Change in Y = Change in Investment / (1 - MPC)

100 = Change in investment / (1 - 0.5)

Change in investment = 100 x 0.5 = $ 50

Investment spending increases by $ 50.

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