Now suppose that households in this economy allocate each additional dollar of income in the following way. Households continue to save $0.10 of each additional dollar income; however, they now pay $0.05 in taxes on each additional dollar of income, and they now spend $0.10 of each additional dollar on imported goods. The remaining fraction of each additional dollar goes toward consumption of domestically produced output. In this case, the fraction of an additional dollar of income that is not spent on domestic output is equal to imports into consideration, the multiplier for this economy is Taking the impact of taxes and
Now suppose that households in this economy allocate each additional dollar of income in the following way. Households continue to save $0.10 of each additional dollar income; however, they now pay $0.05 in taxes on each additional dollar of income, and they now spend $0.10 of each additional dollar on imported goods. The remaining fraction of each additional dollar goes toward consumption of domestically produced output. In this case, the fraction of an additional dollar of income that is not spent on domestic output is equal to imports into consideration, the multiplier for this economy is Taking the impact of taxes and
Chapter9: Aggregate Demand
Section: Chapter Questions
Problem 1.1P
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