For a lump sum tax of 100 in an economy with an MPC of 0.8 by how much will comsumption expenditures drop?

Question

By how much will it cause the equilibrium income to change?

Answer 1

I say their drop will not be one as a whole, yet rather a change in expidentures on what we consume. It all depends on how we will handle the dilemma on the most contraversial scarce resourse- the upcoming energy crisis.

Although what is occuring right now may be reducing (or will be) how much we spend on commodities and leisure, we can solve this with alternative methods that will provide new moarkets for the economy.

Because most Americans are not realizing how economically ineffecient they are at the moment, by wasting energy, they are not realizing that it is effecting their lives at a far greater amount. In the 1950's, the nuclear family had one working member with more than enough to support the entire family. Now it is taking two struggling adults just to make ends meet. This is a result in private costs.

As long as fuel prices are high, marginal costs will reflect them. When we find alternative methods to reduce energy costs and/or usage, a change in income will only benefit those who control the new markets (hybrids, boilers, solar energy, etc.).

Perhaps it is time that Americans beign to improve their lifestyles by being more econmocially efficient (as in not driving 15 mpg SUV's) and valuing things that will return to them such as education or local economies, rather than complaining that they lost their just above minimum wage job to an illegal immagrant and then having to out source. It's time for our money to be recycled in the economy, that way rising incomes out weigh a drop in expidentures.