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2 years ago

Since taxes are not a direct component of aggregate demand changes in taxes do not have multiplier effects on income.

1 answer:

7 0

Components of aggregate demand in a closed economy are consumption(C), investment(I), and government expenditure(G).

So, AD = C + I + G

And consumption is a function of disposable income(Yd) which means

C = C1 + b(Yd)

Where disposable income Yd = (Y - T ). So, disposable income is the remaining income after paying the tax to the government.

So, the AD = C1 + b(Y - T) + I + G. For simplicity we can consider investment and government expenditure as constant.

At equilibrium Y = AD so, Y = C1 + b(Y - T) + I + G.

At period 0, when tax increases ΔT amount then it will decrease consumption at b* ΔT amount. So for any given level of Y, planned expenditure is now lower than income. So initially equilibrium Y decreases by b* ΔT amount. In period 1 this change in income will decrease the consumption at a rate of b(b* ΔT) amount. So Y also decreases by amount b2 * ΔT amount and so on.

So the total change in Y is = b* ΔT + b2 * ΔT + .....

= b* ΔT ( 1 + b + b2 + .....)

= b* ΔT [ 1/ (1- b)]

So, ΔY = b* ΔT [ 1/ (1- b)]

or, ΔY/ ΔT = b / (1-b)

So even if tax is not a direct component of aggregate demand it has a multiplier effect on income. If tax decreases then it will increase disposable income and so as the consumption. An increase in consumption has a positive effect on income in that period and that increased income has a positive effect on consumption in the next period and so as the income. This process will go on.

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Answer:

option D "The demand is unitary elastic."

Explanation:

Data provided:

At price, P1 = 3,000 units

Demand, D1 = $ 50

also,

at price P2 = $ 60

Demand, D2 = 2,500 units

Now,

the percentage change in price = $\frac{60-50}{50}\times100$

the percentage change in price = 20%

and,

The percentage change in the quantity = $\frac{2500-3000}{2500}\times100$

The percentage change in the quantity = -20%

The elasticity in demand (Ed) is given as:

Ed = (Percentage change in quantity) / (Percentage change in price)

on substituting the values, we get

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hence, the correct answer is option D "The demand is unitary elastic."

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3 years ago

A company purchased new furniture at a cost of $19,000 on September 30. The furniture is estimated to have a useful life of 5 ye

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Answer: The depreciation expense that will be recorded for the furniture for the first year ended December 31 is $825.

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(Acquisition value minus salvage value) / No of years

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3 years ago

Determine the balance in Finished Goods Inventory on October 31 and November 30 under absorption costing and variable costing. C

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The question is incomplete, amounts of production costs like Direct Material, direct labour and Variable/Fixed manufacturing overheard were not given, we will explain the absorption cost and variable cost in detail so that the student would be able to calculate absorption cost and variable cost balances easier.

Absorption costing Method

Total Manufacturing costs are allocated to Finished goods Product. Absorption Costing method assigns or allocates the total cost of Manufacturing or total production costs to units of Finished Goods produced. each unit of finished goods thus represents total costs of production per unit or Total Manufacturing/Production cost is the Balance of Finished Goods.

Total Manufacturing/Production cost = direct labor cost + direct material cost + variable and fixed Manufacturing overheads cost.

Finished Goods Balance = Total Manufacturing/Production cost

A unit of Finished Goods = Total Manufacturing costs/units produced

Variable costing method

Variable costing method fixed manufacturing costs are treated as an expense, Variable Manufacturing costs are the only allocated to inventory. The value or Balance of inventory consist of Variable Manufacturing cost like Direct labor, Direct Material and Variable Manufacturing costs. Finished Goods Balance equals total Variable Manufacturing cost

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3 years ago

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Corrected cash balance =

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To make Adjustments to the cash balance, follow these steps;

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3 years ago

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Answer:

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