Exercise 11.7 In the two years before 2008 the Canadian federal government reduced the GST from...
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Exercise 11.7 In the two years before 2008 the Canadian federal government reduced the GST from 7 percent to 5 percent. Use an ADл/AST/Y₁ diagram to illustrate and explain the effects of this tax change on equilibrium output and inflation. If the economy was in equilibrium at Yp and the target inflation rate * before the tax cut, what monetary policy action, if any, would the central bank make to maintain those equilibrium conditions after the tax cut? What short-run net benefit, if any, would households and businesses realize as a result of the cut in the GST? Exercise 11.7 In the two years before 2008 the Canadian federal government reduced the GST from 7 percent to 5 percent. Use an ADл/AST/Y₁ diagram to illustrate and explain the effects of this tax change on equilibrium output and inflation. If the economy was in equilibrium at Yp and the target inflation rate * before the tax cut, what monetary policy action, if any, would the central bank make to maintain those equilibrium conditions after the tax cut? What short-run net benefit, if any, would households and businesses realize as a result of the cut in the GST?
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The economy is at Y on the graphic before the tax cuts Lowering the GST reduces AST to AS1 and drive... View the full answer
Related Book For
Principles of Accounting
ISBN: 978-0618736614
10th edition
Authors: Belverd Needles, Marian Powers, Susan Crosson
Posted Date:
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