1. Consider a two-period economy with lump-sum taxes. Suppose the ment announces a tax cut of 10 in period 1 holding government spending constant in periods 1 and 2. (i.e., AT assuming no debt inherited from period 0, i.e., Bo 0. Suppose the interest rate is 10 percent govern- AG2 0.) We are -10, AG1 (a) Calculate the change in taxes in period 2, AT2. (b) Calculate the change in the primary and secondary fiscal deficits in pe- riod 1 (c) Calculate the change in the primary and secondary fiscal deficits in pe- riod 2

1. Consider a two-period economy with lump-sum taxes. Suppose the ment announces a tax cut of 10 in period 1 holding government spending constant in periods 1 and 2. (i.e., AT assuming no debt inherited from period 0, i.e., Bo 0. Suppose the interest rate is 10 percent govern- AG2 0.) We are -10, AG1 (a) Calculate the change in taxes in period 2, AT2. (b) Calculate the change in the primary and secondary fiscal deficits in pe- riod 1 (c) Calculate the change in the primary and secondary fiscal deficits in pe- riod 2

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 1.4P

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1. Consider a two-period economy with lump-sum taxes. Suppose ment announces a tax cut of 10 in period 1 holding government spending constant in periods 1 and 2. (i.e., ATi assuming no debt inherited from period 0, i.e., Bo 10 percent. the govern -10, AG AG2 0.) We are 0. Suppose the interest rate is (a) Calculate the change in taxes in period 2, AT2. (b) Calculate the change in the primary and secondary fiscal deficits in pe- riod 1 (c) Calculate the change in the primary and secondary fiscal deficits in pe- riod 2
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