Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
expand_more
expand_more
format_list_bulleted
Question
Chapter 15, Problem 5E
(a)
To determine
Impact of decline in the value-added tax on the labor market.
(b)
To determine
Impact of permanent reduction in the value-added tax.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Song earns $148,000 taxable income as an interior designer and is taxed at an average rate of 20 percent (i.e., $29,600 of tax). Answer the questions below assuming that Congress increases the income tax rate such that Song's average tax rate increases from 20 percent to 25 percent.
Required:
What will happen to the government's tax revenues if Song chooses to spend more time pursuing her other passions besides work in response to the tax rate change and therefore earns only $111,000 in taxable income?
What is the term that describes this type of reaction to a tax rate increase?
What types of taxpayers are likely to respond in this manner?
If a tax rate of 1/3 of national income were introduced, what would be the new equilibrium level of national income in the economy outlined above. Show all your workings and explain the mechanisms through which the economy reaches the new equilibrium.
Using a graph and words, explain the effect of SRAS and LRAS curves when the President of the United States would give businesses who invested in new plant and equipment an investment tax credit equal to 10 percent of their investment and the marginal tax rate has been reduced to people who make over $50,000 and are permanent.
Will you work more or less when marginal tax rates are cut and will businesses invest more in plant and equipment when an investment tax credit has been implemented by the President of the United States?
Also explain in your graph what will happen to equilibrium price level and equilibrium real GDP and the unemployment rate when the marginal tax rates are cut and are permanent for people making over $50,000 and the investment tax credit has been implemented by the President of the United States.
Chapter 15 Solutions
Macroeconomics (Fourth Edition)
Knowledge Booster
Similar questions
- Consider a closed economy. The profits of private corporations constitute a fraction ?of national income. These profits are subject to corporate tax and a fraction ? of the net profits is distributed to owners. The remaining profits are invested in theeconomy. To encourage investment, the government proposes to cut the corporation tax. The corporation tax is proportional and so is the regular tax but the rates are notnecessarily the same.Analyse the effects of the government proposal assuming that wages and pricesare flexible. Will there be any ambiguity about the results?arrow_forwardPundits have stated that the recent tax cut mainly benefits companies. The benefit to companies can also spillover to consumers in several ways. Which of the following actions as a result of the tax cut will benefit consumers? tax cut results in more investment expenditures by firms tax cuts raise stock market values tax cuts result in an increase in the capital stock all of the abovearrow_forwardIn South Africa state-owned enterprises (SOE) and labour unions are currently putting pressure on government to finance their activities and to increase wages for civil servants. Discuss how politicians, bureaucrats and interest groups can contribute to the growth of government expenditure in the economy.arrow_forward
- The firm you work for wants you to provide some insight into the investment environment in Mexico before deciding to enter the market. You conduct some research and find a large dispersion of MRPK across firms in Mexico. You also notice that state-owned firms have lower MRPK. Which of the following observations can you make? (there can be more than 1) Firms in Mexico have a hard time expanding due to constraints on the labor market Private firms are at an advantage in Mexico as they face lower capital costs than those owned by the state Resources are likely misallocated because capital is not flowing from firms with low MRPK to firms with high MRPK Your firm may find it more costly to borrow than its state-owned competitorsarrow_forwardAssume you are the Minister of Finance and Economic Planning for Ghana, in charge of Fiscal Policy. The Research Director of the Ministry brought you the following data on Ghana for the previous fiscal year, 2021. An examination of the data reveals that, during the fiscal year 2021, households in Ghana saved 20% of their disposable income (Yd) and spent the rest on consumption. In addition, GH¢5,000.00 was spent on Consumption expenditure (C), which is independent of income and Gross Private Investment (I) was GH¢7,000.00. Total Government expenditure (G) which stood at GH¢8,000.00 was supposed to be financed by a lump sum tax of GH¢2,000.00 (independent of income) and a proportional tax rate of 25% of national income. Exports (X) stood at GH¢2,500.00. In addition, the country’s import (M) during the previous fiscal year comprises of GH¢1,000.00 which was independent of the country’s national income and 10% which was dependent of the country’s national income. Given these data on Ghana…arrow_forwardOn Friday, 27 September, 2019, the Minister of Finance, Honourable Dr. Bwalya Ng’andu, MP, presented the 2020 National Budget to the National Assembly of Zambia. The theme of the budget is “Focusing national priorities towards stimulating the domestic economy”. In this budget the Minister highlighted among other things, some tax incentives and sources of revenue for the year 2020. Among the tax incentives, he proposed the suspension of import duty, for three years, on the importation of machinery for processing of solid waste to generate electricity and produce organic fertilizers as well as on selected aqua culture equipment. The Minister did not propose any changes to the Pay As You Earn (PAYE) tax which remains as follows: Annual Income (K) Tax Rate (%) First 39,600 0 39,6001 – 49,200 25 49, 201 – 74, 400 30 Above 74, 401 37.5 Briefly discuss the effect of the two tax incentives highlighted in the statement above Briefly explain the various…arrow_forward
- Assuming you are the Minister of Finance and Economic Planning for Nigeria, in charge of Fiscal Policy. The Research Director of the Ministry brought you the following data on Nigeria’s for the previous fiscal year, 2021. An examination of the data reveals that, during the fiscal year 2021, households in Nigeria saved 20% of their disposable income (Yd) and spent the rest on consumption. In addition, ₦5,000.00 was spent on Consumption expenditure (C), which is independent of income and Gross Private Investment (I) was ₦ 7,000.00. Total Government expenditure (G) which stood at ₦8,000.00 was supposed to be financed by a lump sum tax of ₦2,000.00 (independent of income) and a proportional tax rate of 25% of national income. Exports (X) stood at ₦2,500.00. In addition, the country’s import (M) during the previous fiscal year comprises of ₦1,000.00 which was independent of the country’s national income and 10% which was dependent of the country’s national income. Given these data on…arrow_forwardBy how much did the disposable income of rich people increase as a result of the 2017 drop in the top marginal tax rate from 39.6 percent to 37 percent? Assume rich people have $2 trillion of gross income in the highest bracket.arrow_forwardConsider the following government policy initiatives for an economy consider the short-term and long-term impacts of reducing corporate tax rate and how this may impact the overall economy/particular sectorsarrow_forward
- TAXES Taxes are any governmental action that reduces the real income of wage-earners as well as non-working Americans. The action can also reduce the profit of business. Taxes act as a leakage from the GDP – Income Stream and will reduce both income and GDP over time. Think of taxes…. Did you buy gas on the way to school? Did it include a tax? When you purchase clothing at the mall, how much is the tax? Driver’s License? Fishing License? Hunting License? Tax on Concert Ticket? Tax on Airline Ticket? Are taxes withheld from your paycheck? Income, FICA and state or local taxes Paying bridge tolls? Taxes on personal or real property? Tax on new tires? Alcohol? Cigarettes? Imports with tariffs? Do all these taxes and licenses reduce our disposable income? Why do we sacrifice and pay these taxes? What are the ways that government helps us?arrow_forwardThe FICA (Federal Insurance Contribution Act) income cap is the point at which one’s income is no longer subject to the 6.2% social security tax that persons pay on their earnings. Under the current law, only the first $142,800 of earnings is taxed. After that, high earners no longer pay Social Security tax for the entire year. Presently the Nation's total personal income approaches $14 trillion. The Congressional Budget Office reports that 80% of all income earned in the Nation is earned above $142,800. 8A. What is meant by the term “Scrap the Cap.” 8B. If the Cap was “scrapped” and if 12.4 % of the income earned over $142,800 was taxed to fund Social Security, how much additional revenue would be generated annually for social security? 8C. Is Social Security really going bankrupt? Please do fast ASAP... fastarrow_forwardSuppose governments increase spending for Social Security pensions. Explain why the increased government spending for pensions will not appreciably increase government purchases of productive resources or the products of business firms.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Survey of Economics (MindTap Course List)EconomicsISBN:9781305260948Author:Irvin B. TuckerPublisher:Cengage Learning
Survey of Economics (MindTap Course List)
Economics
ISBN:9781305260948
Author:Irvin B. Tucker
Publisher:Cengage Learning