Elucidate the impact of an increase in tax on the aggregate expenditure curve and determine the equilibrium income for the economy.
1. (a)Suppose the government increases taxes. What would happen to the AE? curve? describe.
(b) Suppose consumers decide to spend less of every dollar of income earned then previously. What would happen to the AE curve? describe.
2. List four reasons why analyzing the economy is not as precise as the multiplier model makes it appear.
3. The mpe for the economy is .67. Autonomous expenditures are $5,000.
a. What is equilibrium income for the economy?
b. Demonstrate graphically.