Question

osdssments1Ools Resources iscussions ListView Topic Discussion 3: Corporate Income Tax Cuts 9 11:30 PM EST. Available before Sunday, February 17, 201 Subscribe The new tax law dramatically decreases corporate income tax rates. Use the AD/AS model to analyze the likely impact of the tax cuts on the macroeconomy. Show graphically and explain your reasoning. What happens to GDP and the aggregate price level? Why? Do you believe that this tax cut will help the country as a whole? Why? Please provide examples and at least one quotation from your research and its source (must be after July 1, 2018) in your discussion.

Answer 1

Answer-

" A reduction in corporate income tax rates is part of a loose fiscal policy. This will mean that there will be an increase in the spending potential as incomes rise. This will cause the IS curve and also the AD curve to shift rightwards. This causes an increase in prices and also an increase in output levels as the level of GDP rises. In the following diagram the AD curve shifts rightwards from A to B and so the price level rises to P1 and the quantity rises to Q1. This will help the economy as a whole as the increase in incomes will cause the spending to increase and stimulate the economy. This can be found widely in: Intermediate Macroeconomics"" by Greg Mankiw."

A reduction in corporate income tax rates is part of a loose fiscal policy. This will mean that there will be an increase in the spending potential as incomes rise. This will cause the IS curve and also the AD curve to shift rightwards. This causes an increase in prices and also an increase in output levels as the level of GDP rises.In the following diagram the AD curve shifts rightwards from A to B and so the price level rises to P1 and the quantity rises to Q1. This will help the economy as a whole as the increase in incomes will cause the spending to increase and stimulate the economy. This can be found widely in :Intermediate Macroeconomics" by Greg Mankiw.