Econ HW 8- w/answers

William g gale and peter r orszag should the president

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: and Peter R. Orszag, “Should the President ’s Tax Cuts be Made Permanent?” These tax cuts were temporarily extended for those with incomes below $400k ($450k for couples) as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. In 2012, the tax cuts were made permanent for everyone below these thresholds and the marginal tax bra cket for above these brackets increased back to 39.6% (the pre-Bush era rates). 3. As the diagram below shows, higher desired saving shifts the saving supply curve out to the right. At the initial intere st rate, there is an excess supply of funds available to lend. Banks and other financial institutions will lower the interest rate in these circumstances to induce borrowers to take more loans. The lower interest rate reduces the cost of capital, encouraging firms to borrow more for investment. The new equilibrium point result s in higher investment as well as higher saving. (Investment moves from I0 to I1.) Low S r High S I (Investment...
View Full Document

This document was uploaded on 02/26/2014 for the course ECON 100 at DePauw.

Ask a homework question - tutors are online