Class Work 26/03/07

(i) Godley/ Lavoie Table 3.4 Period 2:

G = 20

Y = G/[1-α1{1-θ}] = (20)/[1-0.6{0.8}] = 38.5

T = θ.Y = (0.2)(38.5) = 7.7

YD = Y – T = 30.8

C = α1(YD) + α2(H -1) = 0.6(30.8) + 0.4(0) = 18.5

∆Hs = G – T = 12.3

∆Hh = YD – C = 12.3

H = ∆H + H -1 = 12.3



(ii) Period 3:


G = 20

Y = (G + α2.H -1) /[1-α1{1-θ}] = (20 + 0.4*12.3)/[1-0.6{0.8}] = 47.9

T = θ.Y = (0.2)(47.9) = 9.6

YD = Y – T = 38.3

C = α1(YD) + α2(H -1) = 0.6(38.3) + 0.4(12.3) = 27.9

∆Hs = G – T = 10.4

∆Hh = YD – C = 10.4

H = ∆H + H -1 = 10.4 + 12.3 = 22.7







(iii) Tax Rate now set at 30% Period 2:


G = 20

Y = G/[1-α1{1-θ}] = (20)/[1-0.6{0.7}] = 34.5

T = θ.Y = (0.3)(34.5) = 10.35

YD = Y – T = 24.15

C = α1(YD) + α2(H -1) = 0.6(24.15) + 0.4(0) = 14.5

∆Hs = G – T = 9.65

∆Hh = YD – C = 9.65

H = ∆H + H -1 = 9.65



(iv) Tax Rate now set at 30% Period 3:


G = 20

Y = (G + α2.H -1) /[1-α1{1-θ}] = (20 + 0.4*9.65)/[1-0.6{0.7}] = 41.13

T = θ.Y = (0.3)(41.13) = 12.34

YD = Y – T = 28.79

C = α1(YD) + α2(H -1) = 0.6(28.79) + 0.4(9.65) = 21.13

∆Hs = G – T = 7.66

∆Hh = YD – C = 7.66

H = ∆H + H -1 = 9.65 + 7.66 = 17.31