Study Guide for Mankiw's Principles of Microeconomics, 7th
7th Edition
ISBN: 9781285864242
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 12, Problem 8PA
To determine
The effect of the tax reform of 1986 on the amount of borrowing through consumer debt and home equity debt.
Expert Solution & Answer
Explanation of Solution
The tax reform act of 1986 was implemented in order to reduce the consumer debt and to increase home equity debt. As a result, people started to pay their mortgage less quickly and financed the general spending through home equity.
Economics Concept Introduction
Concept introduction:
Tax: It is the unilateral payment made by the public towards the government. There are many different types of taxes in the economy; they include income tax, property tax, professional tax, and so forth.
Tax reform of 1986: This reform eliminated the deductibility of interest payments on consumer debt but maintained the deductibility of interest payments on mortgages and home equity loans.
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In this question, you will test relative purchasing parity (PPP) using the data. Use yearly
data from FRED website
from 1971 to 2020: (i) The Canadian Dollars to U.S. Dollar Spot
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index for the US (US_CPI). Inflation is measured by the consumer price index (CPI). The relative
PPP equation is:
AE CAN$/US$
ECAN$/US$
=
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Submit the Excel sheet that you worked on.
1. First, compute the percentage change in the exchange rate (left-hand side of the equation).
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ER1972 ER1971
ER 1971
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Show at least two decimal places, as in x.xx%
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Chapter 12 Solutions
Study Guide for Mankiw's Principles of Microeconomics, 7th
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