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In a closed economy, the poor earn the fraction of national income. Their marginal propensity to consume is greater than that of the rich but only the rich pay the proportional tax . The government, which is committed to a non-interventionist policy, claims that redistribution occurs naturally through the sympathy of the rich who donate, annually, the fraction of their income to the poor. In addition, the government has a strict balanced budget policy where government spending depends on the amount of tax raised. Compare the multipliers of the economy with and without donations.

Microeconomics, Economics

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