Question

the accompanying table is the before-tax consumption schedule for a closed economy. if a lump-sum tax (the same tax amount at each level of gdp) of $40 is now imposed in this economy, the consumption schedule will be

Answer 1

The consumption schedule will be affected by the introduction of a lump-sum tax, resulting in a flatter consumption function.

Step-by-step explanation:

The consumption schedule is a representation of how much individuals or households plan to spend on consumption at different levels of income or GDP. In this case, the before-tax consumption schedule shows the relationship between real GDP and consumption, without taking taxes into account.

When a lump-sum tax of $40 is imposed on this closed economy, the consumption schedule will be affected. The introduction of taxes reduces the after-tax income available for consumption, which in turn affects the consumption function. The marginal propensity to consume will be reduced by the amount of the tax rate, resulting in a flatter consumption function.

A consumption schedule is table of numbers showing the relation between consumption expenditures and income for the household sector. The income measure commonly used is national income or disposable income. Occasionally a measure of aggregate production, such as gross domestic product, is used instead.