Question

1. Suppose that the economy begins at potential output. Now, there is a tax cut. a....

1. Suppose that the economy begins at potential output. Now, there is a tax cut. a. Use the Keynesian Cross diagram to show the effect, if any, of the tax cut on output in the short run. b. Explain how the economy returns to potential output. Be sure to describe what happens to inflation and the real interest rate as the economy returns to potential. c. What effect, if any, will the tax cut have on the long-run real interest rate and normal investment? d. Suppose that the tax cut includes substantial reductions in business taxes, and that the administration is right that cutting business taxes increases planned investment at a given real interest rate. How, if at all would this change the answer to part (c)? Please answer part d with a graph. Answers to this question have been posted but are not the answer i was looking for so do not post the same answer.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

This is my answer

Thank you...

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose an economy starts out below potential output instead of at potential output. Moreover, suppose that...
Suppose an economy starts out below potential output instead of at potential output. Moreover, suppose that after a tax cut, the economy is still below potential output in the short run. What are the main benefits of the tax cut in this case?
The Republican tax cut has been in the news. The tax cut which, on net, is...
The Republican tax cut has been in the news. The tax cut which, on net, is set to increase the deficit by $1.5 trillion over the next ten years is the focus of this question. A) One important thing to keep in mind is that the economy is already essentially at potential with unemployment at 4.1%. Assume that the economy is in long run equilibrium before the tax cut. What will happen to the US economy in the short run?...
Suppose a massive and severe natural disaster reduces potential output in the economy. Use the ADI-SRIA...
Suppose a massive and severe natural disaster reduces potential output in the economy. Use the ADI-SRIA diagram and show the effect of a permanent decrease in potential output on the economy in the short run and long run. Assume that the economy initially has an inflation rate of π0 and full-employment output at Yf.
Suppose in an economy which is producing at its potential output, the central bank decides to...
Suppose in an economy which is producing at its potential output, the central bank decides to implement an expansionary monetary policy. Using the AD-AS model, explain the effect that this policy will have in the short run, and in the long run. Illustrate your answer with a diagram.
The components of planned aggregate spending in a certain economy are given by Consumption Function: C...
The components of planned aggregate spending in a certain economy are given by Consumption Function: C = 800 + 0.75(Y - T) – 2000r Planned Investment: I p = 400–3000r Government Revenue and Spending: T = 300 and G = 450 Net Export: NX = 75 where r is the real interest rate (For example, r = 0.01 means that the real interest rate is 1 percent). (1) Find the level of public saving. (2) Suppose that the real interest...
3. The components of planned aggregate spending in a certain economy are given by Consumption Function:...
3. The components of planned aggregate spending in a certain economy are given by Consumption Function: C = 800 + 0.75(Y - T) – 2000r Planned Investment: Ip = 400–3000r Government Revenue and Spending: T = 300 and G = 450 Net Export: NX = 75 where r is the real interest rate (For example, r = 0.01 means that the real interest rate is 1 percent). (1) Find the level of public saving. (2) Suppose that the real interest...
1. Holding everything else constant, the multiplier effect of a $100 tax cut : a)is the...
1. Holding everything else constant, the multiplier effect of a $100 tax cut : a)is the same as the multiplier effect of a $100 increase in G. b)is smaller than the multiplier effect of a $100 increase in G. c)is larger than the multiplier effect of a $100 increase in G. d)may be smaller than, larger than, or equal to the multiplier effect of a $100 increase in G. 2. When the government borrows funds in financial markets to pay...
Assume the economy is initially operating at the natural level of output, and suppose a budget...
Assume the economy is initially operating at the natural level of output, and suppose a budget is passed that calls for a tax cut This fiscal expansion will, in the short run, cause an increase in: A) The interest rate B) The nominal wage C) The output level D) All of the above
Think about a small open economy. Its government announces that they will have a tax cut...
Think about a small open economy. Its government announces that they will have a tax cut of $200 million this year, and there will be a tax increase of $210 million next year, when the interest rate is 5%. Question: If Ricardian equivalence does not hold, what are the effects of this change (tax cut and subsequent tax increase) on a. the world real interest rate, b. national saving, investment, and c. the current account balance in equilibrium?
An economy is described by the following equation: C = 1600 + 0.6 (Y - T)...
An economy is described by the following equation: C = 1600 + 0.6 (Y - T) - 2000 r IP = 2500 - 1000 r G = 2000 T = 1500 C is the consumption, IP is the planned investment, G is the government spending, T is the net taxes, r is the real interest rate. This economy is a closed economy meaning that the Net Exports are always 0, i.e. NX = 0. a. Find an equation relating the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT