Question
An economy has a MPC of 0.21, income tax of 35% and total autonomous expenditure of R17667. The equilibrium income for this economy is:
Answers
GPT-5 mini
Use the tax-adjusted multiplier: multiplier = 1 / [1 − MPC(1 − t)].
MPC(1 − t) = 0.21 × (1 − 0.35) = 0.21 × 0.65 = 0.1365
Multiplier = 1 / (1 − 0.1365) = 1 / 0.8635 ≈ 1.1583
Equilibrium income Y = autonomous expenditure × multiplier = 17,667 × 1.1583 ≈ R20,463.
MPC(1 − t) = 0.21 × (1 − 0.35) = 0.21 × 0.65 = 0.1365
Multiplier = 1 / (1 − 0.1365) = 1 / 0.8635 ≈ 1.1583
Equilibrium income Y = autonomous expenditure × multiplier = 17,667 × 1.1583 ≈ R20,463.