Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 6, Problem 4.2P
To determine
Acceptability of the statement.
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In a country, a value-added tax (VAT) is applied at each stage of production. The nature of VAT allows for the ____________ of the tax burden along the supply chain, from producers to final consumers.
A) Concentration
B) Reduction
C) Absorption
D) Shifting
The Tax Cuts and Jobs (TCJ) Act of December 2017 introduced the largest reform to the U.S. tax
code in more than three decades. One of the most significant changes involved the introduction and
refinement of wage income taxes with standard deductions for low-income workers. This change can be
introduced into the representative consumer's problem by considering a tax rate of t = 0 for the first
I units of real wage income, followed by a proportional tax t on each unit of real wage income greater
than r. Therefore, the consumer's optimization problem can be re-expressed as follows:
Max U(C,1)
subject to
Jw(h - 1) + a, ifw(h – 1) 0
I. Determine the effects of the introduction of the deduction on tax payıments. In particular
(a) Graph the consumer's budget constraint.
(b) Determine the optimization point for the case of a person who does not pay any taxes. Graph.
(c) Determine the optimization point for the case of a person who pays taxes. Graph.
Tax is not the only way to finance the
government expenditures. Government
borrowing has been a major mechanism to
sustain the large outlays in the recent
decades. In the 2009 financial crisis, the
Obama administration has implemented a
large stimulus. Retrospectively, however, it
was likely to be too small to bring the U.S.
economy back to the trajectory. In contrast,
the spending during the 2020-21 pandemic
has been significantly larger (both under
Trump and Biden administrations). Using the
budget projection in the CBO's report,
contrast the magnitude of the budget deficit
in 2009 and 2020, and 2021 and describe
your findings.
Chapter 6 Solutions
Principles of Economics (12th Edition)
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