Assume the following information represents the National Income Model of an "Utopian" economy.Y = C + I + GC = a + b(Y – T)T...

      

Assume the following information represents the National Income Model of an „Utopian? economy.
Y = C + I + G
C = a + b(Y – T)
T = d + tY
I = IO
G = GO
Where a > O; O < b < 1
d > O; O < t < 1
T = Taxes
I = Investment
G = Government Expenditure
Explain the economic interpretation of the parameters a,b,d and t.

  

Answers


Wilfred
a: autonomous consumption expenditure, that is, consumption that is independent of
consumer?s income.

b: marginal propensity to consume (mpc) which refers to the amount of the consumer?s
extra income devoted to consumption. It?s usually a fraction and less than 100%.

d: autonomous tax, that is, the amount that is independent of income paid as tax.

t: marginal propensity to tax, which refers to that portion of extra income paid as tax. It?s
normally in form of a fraction and, again, less than 100%.
Wilfykil answered the question on February 6, 2019 at 10:37


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