1. Assume that the State of New York aproves a bill that eliminates sales taxes and at...
Question:
1. Assume that the State of New York aproves a bill that eliminates sales taxes and at the same time the Congress in Washington D.C passes a tax bill which increases income taxes. Establish the macroeconomics effects of these policies on consumption, investment, interest rate and savings? Use the models (consumption model and loanable funds market) and the graphs. Explain thoroughly.
2. If the government wants to increase the amount of savings in the economy, how should it alter government spending? What effect will this action have on the interest rate in the economy? (Use the appropriate graph and model to illustrate the effect). Explain thoroughly.
3. Let’s suppose we are living in a country in which opportunities of making profits, and entreprenurial activity are main determinants of investment demand. In this scenario, how is parameter b? How this affect the elasticity of investment with respect to changes in interest rate? How a cut in the benchmark interest rate could affect the quantity of investment in the economy? Explain thoroughly, use models, and graphs.
4. Explain how an investment tax break could affect investment, aggregate demand and income. Use graphs and explain.
5. The Current U.S. government spending is $4.746 trillion. That's the federal budget for fiscal year 2020 covering October 1, 2019, to September 30, 2020. It's 21% of gross domestic product. That means that Government Spending in the United States has increased under the current U.S. Administration. Additionally, last year the Congress passed a tax reform that, among other effects, cut payroll taxes: i) Can you establish the macroeconomics effects of these policies on consumption, investment, interest rate and savings? Use the models (consumption model and loanable funds market) and the graphs. Explain. ii) If the aggregate demand is composed by consumption, investment, and government spending (closed economy). How do you think these policies affect the aggregate demand in the short run? Explain.
Managerial Economics Theory Applications and Cases
ISBN: 978-0393912777
8th edition
Authors: Bruce Allen, Keith Weigelt, Neil A. Doherty, Edwin Mansfield