2. Interest rates and the tax code: An economy begins in steady state with an investment rate of 20 percent, a corporate tax rate of 25 percent, a real interest rate of 2 percent, a depreciation rate of 7 percent, and a price of capital that falls at an annual rate of 2 percent. 1. What is the user cost of capital? 2. Suppose the central bank tightens monetary policy, raising the real interest rate from 2 percent to 4 percent. By how much does the user cost of capital rise? 3. How would your answer have differed if the corporate tax rate had been zero? Explain the effect that taxes have on the extent to which monetary policy affects the user cost of capital (and hence the investment rate).

2. Interest rates and the tax code: An economy begins in steady state with an investment rate of 20 percent, a corporate tax rate of 25 percent, a real interest rate of 2 percent, a depreciation rate of 7 percent, and a price of capital that falls at an annual rate of 2 percent. 1. What is the user cost of capital? 2. Suppose the central bank tightens monetary policy, raising the real interest rate from 2 percent to 4 percent. By how much does the user cost of capital rise? 3. How would your answer have differed if the corporate tax rate had been zero? Explain the effect that taxes have on the extent to which monetary policy affects the user cost of capital (and hence the investment rate).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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d. A reduction in the cost of acquiring new physical capital creates many new profitable opportunities for firms. The Loanable Funds Market Interest rate This will: Quantity of dollars Interest rate This will: I Oraise the equilibrium interest rate and decrease the quantity of funds saved and invested. raise the equilibrium interest rate and increase the quantity of funds saved and invested. lower the equilibrium interest rate and decrease the quantity of funds saved and invested. lower the equilibrium interest rate and increase the quantity of funds saved and invested. e. The government decides to increase government purchases (G), which increases the size of the budget deficit. 0 The Loanable Funds Market Quantity of dollars S I O S Ø Oraise the equilibrium interest rate and increase the quantity of funds saved and invested. O raise the equilibrium interest rate and decrease the quantity of funds saved and invested. Olower the equilibrium interest rate and decrease the quantity of…
58. Consider the long-run theory of investment, saving, and growth. Suppose the government has a budget deficit of $600. If the country's level of national saving is $200, then private saving must be $400. $200. $800. -$400. $600.
During the financial crisis it was proposed that firms be provided with a tax credit for investment projects. Such a tax credit would shift: a. the demand for loanable funds left and shift the supply of dollars in the market for foreign-currency exchange right. b. both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange right. c. both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange left. d. the demand for loanable funds right and shift the supply of dollars in the market for foreign-currency exchange left.
5. Consider the long-run theory of investment, saving, and growth. Suppose the government has a budget deficit of $400. If the country's level of national saving is $200, then private saving must be a $800. b. $200. C. $400. d. $400.
A. What is the real value of your savings if the price level increases by 10 percent for the year? B. What is the real value of your saving if the price level declines by 5 percent for the year?
28. An increase in national saving will cause real interest rate and investment spending to change in which of the following ways? A. B. C. D. E. Real Interest Rate Increase Increase Increase Decrease Decrease Nominal Interest Rate 7%³ z%¹ Sp3 Investment Increase Decrease Not change Increase Not change Sp T Q³ Q¹ D Quantity of Money
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Qq.45. Subject :- Economy
1. Suppose GDP equals $7 trillion, consumption equals $1.5 trillion, the government spends $4 trillion and has a budget deficit of $1 Trillion Find public saving, taxes, private saving, national saving, and investment
Suppose that in a closed economy, GDP is $15 trillion, Consumption is $6 trillion, Government Purchases are $5 trillion, and there is a $500 billion budget deficit. 6. What are taxes? 7. What is public saving? 8. What is private saving? 9. What is national saving? 10. What is investment? If then taxes are raised by $500 billion dollars, and the public pays for those taxes entirely by reducing their consumption (no change to their savings), after this tax increase, 11. What is consumption? 12. What are taxes? 13. What is public saving? 14. What is private saving? 15. What is national saving? 16. What is investment?
5. The market for loanable funds and government policy The following graph shows the market for loanable funds. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Treat each scenario separately by resetting the graph to its original state before examining the effect of each individual scenario. (Note: You will not be graded on any changes you make to the graph.) INTEREST RATE (Percent) Supply Demand LOANABLE FUNDS (Billions of dollars) Demand Supply (?) Scenario 1: Individual Retirement Accounts (IRAS) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to such accounts is $5,000 per person. Now suppose there is a decrease in the maximum contribution, from $5,000 to $3,000 per year.
Why, other things remaining the same, does a rise in the real interest rate decrease the quantity of loanable funds demanded? The quantity of loanable funds demanded decreases because at a higher interest rate _______. A. fewer projects have an expected rate of profit below the real interest rate B. more projects have an expected rate of profit that exceeds the real interest rate C. banks want to lend more D. fewer projects have an expected rate of profit that exceeds the real interest rate