Answer to Question #65338 in Macroeconomics for Rubal
C=a+MPC*Yd and suppose mpc=0.8,t=0 and m=0
Let’s see what the situation will be like if economy acts so when income tax rate (t) is equal 0, multiplier of autonomous expenditures (m) is equal to 0 and eventually the marginal propensity to consumption (mpc) is 0.8.
The level of mpc=0.8 describes the economy where the 80% income goes to consumption and only 20% to saving. This kind of fact will cause slower rates of economic growth for the future!
Income tax is one of the major tax group and if its rate is 0, it means first of all that Yd=Y-T=Y, as T=tY. In real life it will be difficult for government to keep budget balance, as there are expensive public expenditures that should be financed in proper level!
There will be no effect on GDP if consumption level rise when m=0. This sort of unbelievable situation explains that there are great problems in autonomous expenditures!