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ECO2004S TUTORIAL 2
Tutorial 2
Hand in date
Instructions
Total marks
: Unit 14
: Monday 16 August 2021
: Answer all questions in Sections A and B.
: 50 marks
SECTION A
MULTIPLE CHOICE QUESTIONS
(20 marks)
[4 mark for each correct answer, -0.5 for each incorrect answer, 0 marks for no answer]
1. A consumption function of C = 500 + c1 Y. In this function the term c1 (the coefficient on Y)
shows________?
A.
B.
C.
D.
The consumption that will occur when income is zero.
The increase in consumption per unit increase in income.
The value of the marginal propensity to consume will always be greater than 1.
The vertical intercept of the consumption function.
2. Which of the following is most correct in relation of precautionary saving __________?
A.
B.
C.
D.
Increase in the general price level in the economy over time.
An increase in saving to restore wealth to its target level.
The money that is left after all the consumption in the economy is done.
The level of wealth that a household aims to hold, based on its economic goals (or preferences)
and expectations.
3. Increase in the investment expectation will result to________?
A.
B.
C.
D.
Movement along the investment line and the increase interest rate will increase.
There will be a shift in the investment line left.
Movement along the investment line and the increase interest rate will fall.
There will be a shift in the investment line right.
4. Crowding out occurs when:
A. An increase in national defence spending is accommodated by expansionary monetary policy.
B. Expansionary monetary policy fails to stimulate economic growth.
C. Expansionary fiscal policy causes interest rates to rise, thereby reducing private investment
spending.
D. Tax increases result in a drop in consumption.
5. The expansionary fiscal policy is highly effect in increase output if_____________?
A.
B.
C.
D.
In the classical case.
If the economy is close to full employment.
If the economy is in recession.
None of the above.
SECTION B
WRITTEN QUESTIONS
(30 marks)
2.1. The Covid-19 has come as the shock in most economies and most economic activities have
slow down. If South Africa saving function is defined by: 𝑆 = −700 + (0.35)𝑌 and
autonomous investment is 𝐼 = 300 and autonomous government expenditure 𝐺 = 500, while
autonomous export is X=450, tax rate is 18% and marginal propensity to import is 0.09. What
is the equilibrium level of income, consumption, savings, and the multiplier? (10 marks)
2.2. If government make a 500 government expenditure in the effort to stimulate the economy and
reduce tat to 5%. What is the equilibrium level of income, consumption and savings? (10
marks)
2.1. Give a well label graph, give explanation of the transition of fiscal policy used in question 2.2?
(10 marks)
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Additional cash withdrawals by Judy Marker
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The employer portion of FICA taxes on wages paid was 7.65%. In addition, Federal and State Unemployment taxes were assessed and paid by Marker Solutions at a rate of 6% on the first $7,000 of earnings per employee. Judy Marker is 100% owner of Marker Solutions. She is married to Jay Marker, who earns a $40,000 salary (with $4,000 withheld for federal income tax purposes) as a W2 employee of a local grocery store. Judy and Jay take the standard deduction when filing their personal taxes. Judy made estimated federal tax payments totaling $16,000 during 2019.
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Supplies:
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Salaries to non-owner Employees
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Self-employment income
Self-employment tax liability
Judy and Jay Marker’s federal taxable income
Judy and Jay Marker’s federal tax payment due (or overpayment to be refunded) with their MFJ 2019 income tax return
3. Refer to the facts presented in Problem 2. Now assume that Marker Solutions is operated as a C Corporation. The reasonable compensation to Judy Marker was paid in the form of W2 wages (of which $3,000 was withheld for federal income taxes) and therefore would be subject to the FICA and unemployment taxes at the corporate level. The estimated tax payments made were paid by and for the business. Compute the following under these assumptions:
Corporate taxable income
Corporate tax liability
Judy and Jay Marker’s federal tax payment due (or overpayment to be refunded) with their MFJ 2019 income tax return
4. Refer to the facts presented in Problem 2. Now assume that Marker Solutions is operated as an S Corporation. The reasonable compensation to Judy Marker was paid in the form of W2 wages (of which $3,000 was withheld for federal income taxes) and therefore would be subject to the FICA and unemployment taxes at the corporate level. The estimated tax payments made were paid by and for the Markers. Compute the following under these assumptions:
S Corporation ordinary income
S Corporation tax liability
Judy and Jay Marker’s federal tax payment due (or overpayment to be refunded) with their MFJ 2019 income tax return
Calculate the total tax assessed (including employment taxes, SE tax, corporate income tax, and individual tax) under Problem 2, Problem 3, and Problem 4 assumptions. What form of entity would you recommend to Judy Marker?
5. In filing its first tax return, Ella Corporation checked the “cost” box as to inventory method. At the end of the year, the cost and market value of inventories were the same. In year 2, the market value of the inventories dropped. Ella would like to use the “lower of cost of market” method. Ella argues that checking the “cost” box was a mistake, and that since they essentially applied the lower of cost or market method in year 1, they should be permitted to use the lower of cost or market method without asking for permission from the IRS. Do you agree? Cite a case and applicable Revenue Ruling to support your answer.
6. Marianna Diago, president of Handler Manufacturing Company, typically spends the first hour at work each day touring the factory, speaking to workers, and listening to complaints. Her remaining 7 hours at work are devoted to long-range planning and financing for the company. Should Handler treat a portion of Marianna’s salary as capitalizable Code Sec. 163A costs? Explain your answer. Should a portion of all other costs related to the president’s office (secretary salary, depreciation, supplies, etc.) be capitalized as Code Sec. 163A costs?
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Post a total of 3 substantive responses over 2 separate days for full participation. This includes your initial post and 2 ...
LDR 535 UOP Wk 5 Organizational Change and The Kotter Model Discussion
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