Business, 26.08.2019 16:10 fluffyskunk302

In this question we will adjust the is-lm curve seen in class slightly. in particular, we will assume that taxes are taken as a percentage of income rather than as a lump sum. then we have c = a + b(1 − τ )y where τ is the percentage (between 0 and 1) of income the government collects in taxes (so that 1 − τ is left to the consumer). assume that investment is a linear function of the interest rate i = e − fr and government spending is fixed at g = g¯ a. derive the is curve (solve for r as a function of y and parameters) b. which parameters affect the slope of the is curve and which affect the intercept? now let: a = 500, b = 0.8, τ = 0.25, e = 5000, f = 300, g¯ = 2500 c. what is the is curve with these numbers? d. what is output if the interest rate is 10%? what if it is 5%? 15%? assume money demand is given by: md p = 2y − 1000r and that the price level is fixed at p = 1 and the money supply at ms = 10, 000 4 e. what is the lm curve with these numbers? f. using the is curve in part c and the lm curve in part e, find the equilibrium interest rate and output for this economy. g. how much does the government collect in taxes in equilibrium? what would the new equilibrium income if the government eliminated the income tax and instead collected a lump sum to get the same total tax revenue? h. government spending increases by 500. compare the increase in income in the model with the income tax to the model with the lump sum tax. explain the economic intuition.

Answers: 2

Show answers

Other questions on the subject: Business

Business, 22.06.2019 10:30, batmanmarie2004

The card shoppe needs to maintain 21 percent of its sales in net working capital. currently, the store is considering a four-year project that will increase sales from its current level of $349,000 to $408,000 the first year and to $414,000 a year for the following three years of the project. what amount should be included in the project analysis for net working capital in year 4 of the project?

Answers: 3

continue

Business, 22.06.2019 11:30, deedivinya

What would you do as ceo to support the goals of japan airlines during the challenging economics that airlines face?

Answers: 1

continue

Business, 22.06.2019 15:30, graciemccain

On january 15, the end of the first biweekly pay period of the year, north company’s payroll register showed that its employees earned $32,000 of sales salaries. withholdings from the employees’ salaries include fica social security taxes at the rate of 6.2%, fica medicare taxes at the rate of 1.45%, $3,000 of federal income taxes, $772 of medical insurance deductions, and $260 of union dues. no employee earned > $7,000 in this first period. prepare the journal entry to record north company’s january 15 (employee) payroll expenses and liabilities.

Answers: 3

continue

Business, 22.06.2019 21:00, diablo871

Frost corporation incurred the following transactions during its first year of operations. (assume all transactions involve cash.) 1) acquired $1,900 of capital from the owners. 2) purchased $435 of direct raw materials. 3) used $290 of these direct raw materials in the production process. 4) paid production workers $490 cash. 5) paid $290 for manufacturing overhead (applied and actual overhead are the same). 6) started and completed 250 units of inventory. 7) sold 140 units at a price of $6 each. 8) paid $130 for selling and administrative expenses. the amount of raw material inventory on the balance sheet at the end of the accounting period would be:

Answers: 3

continue

You know the right answer?

In this question we will adjust the is-lm curve seen in class slightly. in particular, we will assum...