. Although our development of the Keynesian cross assumes that taxes are a ?xed amount, in many countries (including the United States)taxes depend on income. Let’s represent the tax system by writing tax revenue as: T = T + tY where T and t are parameters of the tax code. The parameter t is the marginal tax rate: if income rises by 1 dollar, taxes rise by t * 1 dollars. How does this tax system change the way consumption responds to changes in GDP? In the Keynesian cross, how does this tax system alter the government-purchases multiplier? Is the IS--LM model, how does this tax system alter the slope of IS curve?
This question was answered on: Sep 21, 2023
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