Final Exam Essay

Final Exam Essay - Here are the two essay questions that...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Here are the two essay questions that will be on the final exam – you will only do one of them and the one that you’ll do will be determined by a coin flip. It is probably a good idea to bring different colored writing instruments! Good luck! DO THIS QUESTION IF A HEADS IS FLIPPED 1. On Kudlow and Co., 1 Monday 12/1, Larry Kudlow featured what he refers to as the ‘dynamic duo,’ two gentlemen that know enough economics to be scary. They, as in Stephen Moore (WSJ) and Robert Reich (former Secretary of Labor and advisor to Barrack Obama) were having a heated discussion as to how the government should get us out of this economic calamity. Stephen Moore basically teamed up with Kudlow and argued for cutting taxes on corporations across the board. Kudlow was even calling for a ‘corporate tax holiday,’ an idea originally proposed by Robert Mundell. Click Here for an article on Mundell and Volcker. The policy that Mundell, Moore, and Kudlow support, effectively, is to lower the effective tax rate on capital (see discussion in text on pages 132-133). In fact, they argue that many other industrialized economies around the world are lowering their effective tax rates on capital and if we don’t follow suit, investment funds will seek the more favorable ‘investment’ environments and that would not be good. The Policy that Reich and most probably Volcker are supporting is much different and focuses on lower taxes / tax rebates (for consumers) and massive amounts of Government purchases with particular attention given to investment in infrastructure and ‘green’ technology. Please answer the following questions. 1. a) One of these groups is labeled as supply siders and the other group is labeled as (new) Keynesians. In four sentences or less, identify the supply siders and the Keynesians, making sure to explain clearly why they are labeled as they are. 1 Kudlow and Co. is on CNBC at 7 pm. Monday through Friday. 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
b), In this part you are to explain exactly how lowering the effective tax rate on capital will work (in theory) its way through the economy. In this discussion, you need to differentiate between the short- run and long-run. In the space below, explain, with graphical analysis, how lowering the effective tax rate on capital will influence real economic variables in the short run (hint, it’s a demand side story). Draw 4 diagrams (label them 1 through 4), with 1) a user cost ; desired capital (K*) diagram, followed by 2) a closed economy desired saving; desired investment diagram, followed by 3) an IS – LM diagram followed by 4) an aggregate supply ; aggregate demand diagram. Start at an initial equilibrium and label as point A in all diagrams, with all the associated market
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/15/2008 for the course ECON 304 taught by Professor Stone,mistyriano,alejandro during the Fall '07 term at Penn State.

Page1 / 11

Final Exam Essay - Here are the two essay questions that...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online