Week 6 Problem Set

1) Chapter 11

Briefly explain whether any of the following policies are likely to increase the rate of economic growth in the United States. Give economic rationale.

a. Congress passes an investment tax credit, which reduces a firm's taxes if it installs new machinery and equipment.

b. Congress passes a law that allows taxpayers to reduce their income taxes by the amount of state sales taxes they pay.

c. Congress provides more funds for low-interest loans to college students.

2) Chapter 12 Number 3.6

At point A on the following graph, is planned aggregate expenditure greater than, equal to, or less than GDP?

What about at point B?

At point C?

Assets Liabilities Reserves $10,000 Deposits $70.000 Loans $66.000 Stockholders equity $6,000Real aggregate expenditure, AE G B A 459 Real GDP, Y