Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Suppose Congress (in an attempt to stimulate the economy in both the short and long run) passes an investment-tax credit designed to increase domestic investment.
How will this policy affect (comparing the state of the economy prior to the enactment of the Investment Tax Credit): [Explain how you worked out your answers in each case.]
1) national saving?
2) domestic investment?
3) net capital outflow?
4) the real interest rate?
5) the exchange rate?
6) the trade balance?
Hints:
1) An investment-tax credit provides businesses with a "credit" on their federal income-tax obligation that is proportional to the dollars spent on qualifying capital goods purchases during a given tax year. A 10% tax credit might work as follows. Consider the purchase of a new computer system for your company which costs $100,000. This investment would translate into a $10,000 credit (reduction) on taxes owed by the company at the end of the year. Thus a policy enacting an investment tax credit is expected to increase the demand for investment goods at every interest rate. You should think about what happens to the demand for loanable funds if there is an increase in the domestic demand for investment goods at every real interest rate.
2) Using the 3-graph model developed in chapter 14 (see Figures 3 through 7 on pages 297 - 307), consider first the impact on the demand for loanable funds. If businesses respond as expected to the investment-tax credit, consider what will happen to the demand for loanable funds. Given this, consider what, if any, change there will be in interest rates. If interest rates change, then consider what the expected impact will be on net capital outflow (net foreign investment). [Pay close attention to Figure 3 (page 298). A rise in the real interest rate causes net capital outflow (aka net foreign investment) to move in a negative direction. Think about this in the following way. As real interest rates in the US rise (relative to real rates in the rest of the world) the foreign demand for US assets rises. At the same time the US demand for foreign assets will fall because of the higher return available in the US. Both effects cause net foreign investment to move in a negative direction.]
Since under a fixed exchange rate system the exchange rate does not change, does this mean that the BP curve never shifts? Why or why not? If it in fact does shift, what effects do such movements have on the equilibrium interest rate and equilibrium ..
Using the demand and supply for bond model and the demand and supply for loanable funds model, show what would happen to the price of bond and the interest rate for each of the following scenarios:
Reston Aviation has been awarded a government contract that requires the fabrication of an unusually large helicopter blade spar. Barbara Matthews, Reston’s President, is faced with two alternatives: Assessment of Risk for Fabrication of Helicopter S..
In pure competition-marginal revenue
Suppose that Taher's pizza business operates under competitive conditions and that his short-run production function is q=20^E. How much labor does he employ if the price of each pizza is p = $12 and the hourly wage is w0 = $6? [Hint: In this case, i..
Which of the following would be the least likely method for firms to raise the financial capital they need to pay for new equipment?
Explain how do we measure income inequality. What problems arise the more unequal a country's income distribution becomes.
If market participants expect higher inflation in the future, the quantity of loanable funds demanded will increase. This will cause a movement along the demand function for loanable funds. If credit risk increases, supply of loanable funds will shif..
Create graphs and tables to illustrate costs and revenues for firms in different market structures. You have learned about the market structures of pure competition, monopoly, monopolistic competition, and oligopoly. In this assignment, you will appl..
Suppose an airline is losing money because they cannot fill enough seats in their flights with passengers. The airline would offer a flight only if at least 70% of the seats could be filled. The average total cost for the typical flight is $12,600. W..
Can you think of a product that is a large part of your budget where the price elasticity of demand is very low? Why is it so low? In estimating demand functions, what is the most important thing to remember? Why?
Consider two fictional economies, one called the domestic country and the other called the foreign country. Given the transactions listed below, construct a balance of payments account for each county. Include a statistical discrepancy.
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd