Consider the following economy with Ta = 650 and YA = 9,800. a) If G = 3700, Derive the equation of the BDA as a function of t (tax rate). b) Find the tax rate at which the country will be running a budget balance (zero deficit). c) Find the values of the deficits for the following tax rates: 20%, 22%, 25%, 30%, 32%, 35% and 40%. d) Graph your findings in c using any graphing tool ( preferably excel) Please make sure you answer d and c. Need graph to show work
(a)
Total tax: T = Ta + t x YA
T = 650 + 9,800 x t
BDA (Budget deficit) = T - G
BDA = 650 + 9,800t - 3,700
BDA = 9,800t - 3,050
(b)
When budget is balanced, BDA = 0
9,800t - 3,050 = 0
9,800t = 3,050
t = 0.3112 = 31.12%
(c) [Note that when BDA > 0, there is budget deficit and when BDA < 0, there is budget surplus]
t | BDA |
0.2 | -1090 |
0.22 | -894 |
0.25 | -600 |
0.3 | -110 |
0.32 | 86 |
0.35 | 380 |
0.4 | 870 |
(d)
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