Given the features of Sunrise island, estimate the equation for consumption, net tax revenues, disposable income, and calculate the simple multiplier.
Starting with the estimated demand function for Chevrolets, assume that the average value of the independent variables changes to N=225 million, I=$12,000. PF=$10,000, PG=100 cents, A=$250,000, and PI=0 (i.e., the incentives are phased out)
(a) Find out the equation of the new demand curve for Chevrolets.
(b) Plot this new D'C, and on the same graph, plot the demand curve for Chevrolets, DC
(c) Illustrate what is the relationship between DC and D'C? What explains this relationship?