The current market rate of interest is 8 percent. At that rate of interest, businesses borrow $500 billion per year for investment and consumers borrow $100 billion per year to finance purchases. The government is currently borrowing $100 billion per year to cover its budget deficit. Derive the market demand for loanable funds, and show how investors and consumers will be affected if the budget deficit increases to $200 billion per year. Show the impact on the market rate of interest, assuming that taxpayers do not anticipate any future tax increases. How would your conclusion differ if taxpayers fully anticipate future tax increases?
Answer to relevant QuestionsThe classical economists argued that budget deficits would not affect current spending. Suppose the federal government increases its purchases of goods and services by $100 billion this year. Classical economists who believe ...Suppose the current market rate of interest is 8 percent. John is subject to a 31 percent marginal tax rate on his interest income. What is John's equilibrium marginal rate of time preference? Suppose the marginal tax rate ...Suppose the current progressive income tax structure is scrapped and replaced by a 15 percent tax on all income with no exemptions or deductions allowed except that the first $10,000 of income will not be subject to ...Suppose legislation were passed that abolished all state and local sales taxes and replaced them with one uniform sales tax on all consumption including consumption of services. The federal government would collect the tax ...The elasticity of the property tax base for the town of Elderberry is estimated to be 22. Assuming that this estimate is correct, what effect would a 10 percent increase in the property tax have on property value and tax ...
Post your question