Question: For the fiscal example of Section 17.4.5, what would the outcome be if the U.S. government simply taxed each U.S. household to pay for the

For the fiscal example of Section 17.4.5, what would the outcome be if the U.S. government simply taxed each U.S. household to pay for the public works project? Specifically, suppose that at the beginning of each period, the government taxes from each worker an amount of cash equal to 10% of that worker's expected wage that period, and then the government uses that money to hire workers for the public works. What would be the equilibrium outcome, prices, quantities, and exchange rate? How would it be different from the outcome discussed in the text, with money printing to pay for the public works and x = 0 (so that the Chinese government is not helping)?

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With the government expenditure financed with taxes a situation we may call a puretax model the outcome is the following The output of both goods in both countries is the same as in the basic model wh... View full answer

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