Effect of tax rate changes
Dear OTA: Help needed with the following:
*Please identify and describe the effect of changing the tax rate on disposable income and consumption, as well as the post-tax multiplier.
*Please describe the likely changes to equilibrium output and price levels resulting from the change in the tax rates. Begin by describing the effects on aggregate supply and/or demand to fully demonstrate the connection between the tax rate change and equilibrium.
*Please describe the change in tax revenues for the government in the new equilibrium, in both the short and longer terms
Overall, please assume that overall taxes are cut by 10 percent across the board. What will this change do to disposable income, consumption, and the multiplier? What’s likely to happen to equilibrium output and prices? How will the tax cut affect government revenues in the new equilibrium?