Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Question
Chapter 18, Problem 8E
To determine
The impact of reducing taxes on investment.
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Students have asked these similar questions
Governments attempt to stimulate economies by offering firms temporary investment tax credits.
Explain the effects of this measure on investment spending.
Would you expect a permanent or temporary measure to have more effect.
Concerning the government budget constraint and the impact of cutting taxes on investment - if the government cuts taxes and funds this tax cut by cutting government spending in the same period is it right to say that government saving doesn't change but private saving will as consumers will receive this permanent tax cut - thereby increasing the income flow increasing consumption.
National Income: Where It Comes From and Where It Goes — End of Chapter Problem
If consumption depends on the interest rate, saving will also depend on it. In particular, the higher the interest rate, the greater will be the return to saving. Hence, the supply of loanable funds will be represented by an upward-sloping, rather than a vertical, curve.
National saving is the sum of public saving and private saving. Investment in this analysis is private investment. It does not include public investment.
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- The fluctuations in the income level that result from changes in investment spending depend only on the magnitude of the changes in investment spending but not on the size of the MPC tend to be larger if the income tax rate (t) is larger tend to be larger with a larger MPC tend to be larger the larger the marginal propensity to import tend to be larger with a larger MPSarrow_forwardInvestment can be increased both by reducing taxes on private saving and by reducing the government budget deficit. True or False: It is possible to implement both of these policies at the same time because reducing taxes on private spending has the effect of decreasing the government budget deficit. True False What would you need to know in order to judge which of these two policies would be a more effective way to raise investment? Check all that apply. The responsiveness of private saving to increases in investment The response of private saving to changes in the government budget deficit The elasticity of private saving with respect to the after-tax real interest ratearrow_forwardquestions:1. what is the current level of real GDP?2. what is the current overall price level?3. what is the current level of real GDP per capita?arrow_forward
- Explain and diagrammatically represent the shift in the DLF curve as a result of each of the following: -- a rise in autonomous investment -- a rise in the size of the budget deficit -- a decline in autonomous investment 25. What is autonomous investment?arrow_forwardNote: Hand written solution is not accepted.arrow_forwardWhich of the following policies can the government implement to stimulate investment? Group of answer choices Reduce taxes on interest income or capital gains Accelerate businesses' depreciation allowances Reduce budget deficits All of these are correctarrow_forward
- In a closed economy, the gross domestic product is $25,000, consumption is $8,200 and taxes are $3,700. If the national saving is 3,000, if the investment function is represented by I = 3,400-80r, the equilibrium interest rate is: Select one: a. 12% b. 5% c. 3% d. 8% e. None of the answers are correctarrow_forwardExplain how the Keynesian view differs from the classical view with respect to saving. Explain further how the two views differ with respect to investment.arrow_forwarda. Suppose the government increases both taxes (7) and government purchases (G) by equal amounts. Assuming income (Y) is fixed by the factors of production, the change in national saving (AS) will be (MPC-1) * AT. (1-MPC) x AT. b. The larger is the MPC (the closer it is to 1), the will be the increase in the interest rate. will be the decline in investment, and thearrow_forward
- What is the meaning of "animal spirits"? How do these relate to planned investment spending and to unplanned investment spending?arrow_forwardAssume that GDP ( y) is 6.000. Consumption (C) is given by the equation C= 600 + 06(Y-T). Investment (I )is given by the equation I=2,000- 100r, where r is the real rate of interest in percent. Taxes (T) are government spending (G) is also 500 a. What are the equilibrium values of C, I, and r? b) What are the values of private saving, public saving, and national saving? ·arrow_forwardPlease calculate level of GDP in equilibrium, consumption and savings level if you know that: | (investment) = 300 Ca (Autonomous Consumption) = 100 %3D MPS (Marginal Propensity to Save) = 0,1 G (Government Expenditures) = 300 T (net taxe rate) = 0,2arrow_forward
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