Class 12 Macro Economics - Chapter Government Budget and Economy NCERT Solutions | In the above question, calculate the eff
In the above question, calculate the effect on output of a 10 per cent increase in transfers, and a 10 per cent increase in lump-sum taxes. Compare the effects of the two.
MPC = 0.80
= 20
I = 30
G = 50
TR = 100
ΔTR = 10
Equilibrium level of income =
= Rs 940
Change in income = 940 - 900 = Rs 40
Increase in lump-sum tax ΔT = 10
Change in Income
= 10 ×
= - 10 × 4
= - 40
From the above results, we can conclude that increase of 10 percent in transfers will raise the income by 40%.
And, increase of 10% in tax will lead to a fall in the income by 40%.
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