Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 26, Problem 6SPPA
To determine
To show:
On a graph, the effects of a decrease in government budget surpluses if there is no Ricardo-Barro effect. And explaining the difference in the effects of a decrease in government budget surplus if there is partial Ricardo-Barro effect.
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K
During the 1980s, the controversial economist
Arthur Laffer promoted the idea that tax
increases lead to a reduction in government
revenue. Called supply-side economics, the
theory uses functions such as
f(x) = -
-, 30 ≤x≤ 100. This function
models the government tax revenue, f(x), in tens
of billions of dollars, in terms of the tax rate, x.
The graph of the function is shown. It illustrates
tax revenue decreasing quite dramatically as the
tax rate increases. At a tax ate of (gasp) 100%,
the government takes all our money and no one
has an incentive to work. With no income earned,
zero dollars in tax revenue is generated.
Complete parts (a) through (c) below.
110x-11,000
x-140
a. Find f(30).
f(30) = (Round to the nearest integer as needed.)
Tax Revenue
80-
40-
0-
0
50
Tax Rate
100
Suppose Congress enacts a tax reform law, and the average federal tax rate drops from 30 per- cent to 20 percent. Researchers investigate the impact of the tax cut and find that the income subject to the tax increases from $600 billion to $800 billion. The theoretical explanation is that workers have increased their work effort in response to the incentive of lower taxes. Is this a movement along the downward-sloping or the upward-sloping portion of the Laffer curve?
What is meant by dynamic inconsistency? Give at least two examples of policies that are dynamically inconsistent.
Chapter 26 Solutions
Foundations of Economics (8th Edition)
Ch. 26 - Prob. 1SPPACh. 26 - Prob. 2SPPACh. 26 - Prob. 3SPPACh. 26 - Prob. 4SPPACh. 26 - Prob. 5SPPACh. 26 - Prob. 6SPPACh. 26 - Prob. 7SPPACh. 26 - Prob. 8SPPACh. 26 - Prob. 9SPPACh. 26 - Prob. 1IAPA
Ch. 26 - Prob. 2IAPACh. 26 - Prob. 3IAPACh. 26 - Prob. 4IAPACh. 26 - Prob. 5IAPACh. 26 - Prob. 6IAPACh. 26 - Prob. 7IAPACh. 26 - Prob. 8IAPACh. 26 - Prob. 9IAPACh. 26 - Prob. 10IAPACh. 26 - Prob. 1MCQCh. 26 - Prob. 2MCQCh. 26 - Prob. 3MCQCh. 26 - Prob. 4MCQCh. 26 - Prob. 5MCQCh. 26 - Prob. 6MCQCh. 26 - Prob. 7MCQCh. 26 - Prob. 8MCQ
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