CHAPTER 34 FIVE DEBATES OVER MACROECONOMIC POLICY 809 government announced a reduction in taxes on income from capital investments, like new factories. a. If investors believed that capital taxes would remain low, how would the government’s action affect the level of investment? b. After investors have responded to the announced tax reduction, does the government have an incentive to renege on its policy? Explain. c. Given your answer to part (b), would investors believe the government’s announcement? What can the government do to increase the credibility of announced policy changes? d. Explain why this situation is similar to the time inconsistency problem faced by monetary policymakers. 6. Chapter 2 explains the difference between positive analysis and normative analysis. In the debate about whether the central bank should aim for zero inflation, which areas of disagreement involve positive statements and which involve normative judgments? 7. Why are the benefits of reducing inflation permanent
This is the end of the preview. Sign up
access the rest of the document.
This note was uploaded on 08/01/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.