A. Tax Policy: What would happen to inflation, GDP, unemployment and economic growth in the short run and the long run if we cut income taxes by 100
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Question

   A. Tax Policy: 

  1. What would happen to inflation, GDP, unemployment and economic growth in the short run and the long run if we cut income taxes by 100 billion and the marginal propensity to consume (MPC) is equal to .75? Please include the appropriate equation and an analysis of the impacts of C, I, G, NX, AD, AS, P, Q, inflation and economic growth.
  2. How would this tax cut impact the National Budget and the National Debt? What are the pros and cons of running a deficit? Would you support such a tax cut and for whom should we impose the tax cut?
  3. What would happen to these variables and the AD/AS graph if we had a corporate tax cut of 100 billion instead? 
  4. What are 4 policies that the Supply-side Model supports?

 

 

B. To fight a inflation:

 

1) How should the government execute Fiscal Policy? 

2) How should the Federal Reserve Bank execute Monetary Policy? 

 

Please include the appropriate graphs, equations, and analysis and how these policies each affect C, I, G, AD, AS, P, Q, inflation, Unemployment, GDP and economic growth. 

 

Section C:


3.     What would happen in the short-run and long-run to C, I, G, NX, AD, AS, P, Q, inflation and economic growth if the Federal Reserve Bank increased the money supply? Please include the 4 tools for how they would increase the money supply and how this would impact 1) interest rates (include a money graph) and 2) inflation and output (using the AD/AS graph.)

 

4.    If we increase government spending on education and infrastructure how will this impact AD/AS. Make sure to include a Goods graph for each model:

 

a) Classical Model

b) Keynesian Model

c) Supply-side Model

 

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