Question

PART 1 Suppose AS increases by $50 billion for every 1 percentage point decrease in business...

PART 1
Suppose AS increases by $50 billion for every 1 percentage point decrease in business tax rates. By how much will AS increase when the tax rate is reduced from 35 percent to 30 percent? billion

PART 2

Suppose consumers' disposable income increased by $350 billion and their spending increased by $325 billion. What was the MPC?

Instructions: Round your response to two decimal places.

MPC= _______
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Answer #1

Part 1

Increase in AS for 1 percentage point Decrease in business tax rates= $50 billion

Now the tax rate is reduced from 35 Percent to 30 percent, that is tax rate is Reduced by 5 percentage

So, Increase in AS for 5 percentage point Decrease in business tax rates= 50×5= $250 billion

So AS will increase by $250 billion if tax rate is Reduced from 35 Percent to 30 percent.

Part 2

Marginal Propensity To Consume (MPC)= Increase in Consumption spending/Increase in Disposable Income= 325/350= 0.93

MPC= 0.93

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