Suppose that the government decides to reduce the lump-sum tax.
.1. Suppose that the government decides to reduce the lump-sum tax.
(a) Illustrate the effects this has on aggregate output, consumption, and leisure using the Closed economy One-period Macroeconomics model. Be sure to label each of these on your graph as well as distinguish between the original and new equilibria.
(b) Explain what happened to employment and the real wage.
Homework Answers
Suppose a government decides to reduce spending and (lump-sum) income taxes by the same amount. Using...
Suppose a government decides to reduce spending and (lump-sum) income taxes by the same amount. Using the long-run model of the economy, graphically illustrate the impact of the equal reductions in spending and taxes. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. The direction the curves shift; and v. the terminal equilibrium values. b. State in words what happens to: i. the real interest rate; ii. national saving; iii. investment; iv. consumption;...
Suppose that the government decides to reduce taxes.
Suppose that the government decides to reduce taxes. In the model used in Chapter 5, determine the effects this has on aggregate output, consumption, employment, and the real wage, and explain your results.
Suppose that the government decides to reduce taxes. In the basic model used in this chapter,...
Suppose that the government decides to reduce taxes. In the basic model used in this chapter, determine the effects this will have an aggregate output, consumption, employment, and the real wage, and explain your results.
Suppose that there is a natural disaster hits that destroys part of the nation's capital stock
2. Suppose that there is a natural disaster hits that destroys part of the nation's capital stock. (a) Illustrate the effects this has on aggregate output, consumption, and leisure using the the Closed economy One-period Macroeconomics model. (b) Explain the effects on employment, and the real wage with reference to income and substitution effects. Which effect dominated in your graph in (a)? (c) Do you think that changes in the capital stock are a likely cause of the business cycle? Explain with reference...
Planned expenditure function question with lump-sum tax
Planned expenditure function question with lump-sum taxDo all parts to the question (show your work)Assume in Fantasticland, MPC = 0.75, and autonomous consumption = $6000. Planned investment = $2000, and planned government purchases = $5000. All Planned I and G are autonomous expenditures. Taxes ( T) is = $1000, and net exports = zero.a. Write out the consumption functionb. What is induced consumption in this model?c.Write out the planned expenditure function (show your work)d. Calculate current equilibrium real...
Suppose the government decides to reduce both government expenditures and taxes by the same amount (this...
Suppose the government decides to reduce both government expenditures and taxes by the same amount (this is a “balanced budget” change). What happens to: (i) national saving; (ii) the real interest rate; (iii) investment; (iv) consumption; and (v) output? Illustrate graphically using the The loanable funds market graph and explain in words why these variables change or why they do not change.
(25pts) 2. Suppose the government wants to reduce its budget deficit. Using the long-run model of...
(25pts) 2. Suppose the government wants to reduce its budget deficit. Using the long-run model of the economy developed in Chapter 3, illustrate graphically the impact of the alternative fiscal policy measures indicated in parts (a) and (b) below. Be sure to label: (i) the axes, (ii) the curves, (iii) the initial equilibrium values; (iv) the direction curves shift; and (v) the final equilibrium values. (15) a) Suppose the government decides to reduce the government's budget deficit by reducing government...
1.Suppose the government of a small open economy passes an investment tax exemption to stimulate investment....
1.Suppose the government of a small open economy passes an investment tax exemption to stimulate investment. Using the classical open economy model from chapter 6, what will the effects of this investment tax exemption? Suppose a government decides to increase taxes. 2.Using the long-run model of the economy developed in Chapter 3(national income), graphically illustrate the impact of on GDP. Be sure to label the axes, the curves, the initial equilibrium values, the direction curves shift, and the terminal equilibrium...
1.Suppose the government of a small open economy passes an investment tax exemption to stimulate investment....
1.Suppose the government of a small open economy passes an investment tax exemption to stimulate investment. Using the classical open economy model from chapter 6, what will the effects of this investment tax exemption? Suppose a government decides to increase taxes. 2.Using the long-run model of the economy developed in Chapter 3(national income), graphically illustrate the impact of on GDP. Be sure to label the axes, the curves, the initial equilibrium values, the direction curves shift, and the terminal equilibrium...
3. Reducing tax rates: Suppose the government decides to reform the tax system to reduce the...
3. Reducing tax rates: Suppose the government decides to reform the tax system to reduce the marginal income tax rate across the board. Explain the effect on wages, the employment-population ratio, and unemployment. 4. A positive oil shock: Suppose scientists discover a new way to extract oil from deposits that were previously thought to be unrecoverable. The extra supply of oil leads oil prices to decline by $5 per barrel. Explain the effect on wages, the employment-population ratio, and unemployment—all...
(25pts) 2. Suppose the government wants to reduce its budget deficit. Using the long-run model of the economy developed in Chapter 3, illustrate graphically the impact of the alternative fiscal policy measures indicated in parts (a) and (b) below. Be sure to label: (i) the axes, (ii) the curves, (iii) the initial equilibrium values; (iv) the direction curves shift; and (v) the final equilibrium values. (15) a) Suppose the government decides to reduce the government's budget deficit by reducing government...
3. Reducing tax rates: Suppose the government decides to reform the tax system to reduce the marginal income tax rate across the board. Explain the effect on wages, the employment-population ratio, and unemployment. 4. A positive oil shock: Suppose scientists discover a new way to extract oil from deposits that were previously thought to be unrecoverable. The extra supply of oil leads oil prices to decline by $5 per barrel. Explain the effect on wages, the employment-population ratio, and unemployment—all...
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