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2016/3/4 The Economist explains:
1,Although our development of the Keynesian cross in this chapter assumes that taxes are a
fixed amount, most countries levy some taxes that rise automatically with national income.
(Examples in the United States include the income tax and the payroll tax.) Let’s represent
the tax system by writing tax revenue as
where and t are parameters of the tax code. The parameter t is the marginal tax rate: if
income rises by $1, taxes rise by t*$1.
a.How does this tax system change the way consumption responds to changes in GDP?
b.In the Keynesian cross, how does this tax system alter the government-purchases
multiplier?
c.In the IS-LM model, how does this tax system alter the slope of the IS curve?
Read the following article:Why the price of oil is falling. The Economist (12/8/14).
What is the likely effect of an exogenous decrease in the price of oil on the Canadian economy? Explain how the Bank of Canada would respond to such shock.( two pages required)
