Consumption of durables is more variable relative to trend than is consumption of nondurables and consumption of nondurables is more variable relative to trend than is consumption of services. Speculate on why we observe these phenomena, and relate this to the key business cycle facts in Tables.
Answer to relevant QuestionsIn Figure, after the 1981-1982 recession, does the price level appear to be procyclical, countercylical, or acyclical? Why is this important?Suppose that the government imposes a proportional income tax on the representative consumer's wage income. That is, the consumer's wage income is w(1 – t)(h – l) where t is the tax rate. What effect does the income tax ...Suppose that the government imposes a producer tax. That is, the firm pays t units of consumption goods to the government for each unit of output it produces. Determine the effect of this tax on the firm’s demand for labor.Suppose that the government decides to reduce taxes. In the model used in this chapter, determine the effects this has on aggregate output, consumption, employment, and the real wage, and explain your results.Extend the model of public goods, in the last section of this chapter, as follows. Suppose that output is produced, as in the simplified model with proportional taxation, only with labor, and that z = 1. Here, however, there ...
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