Economic Activities affect o Taxes

SoccerBoss
Category:
Economics
Price: $15 USD

Question description

Taxes are affected by the level of economic activity: When output increases, tax revenues typically increase, when output falls, tax revenues fall. Suppose a balanced- budget amendment is passed by Congress, which requires that the budget always be balanced. Further assume that the economy is initially operating at its natural level of output and that the budget is currently balanced.

a. Now suppose consumer confidence declines. What effect will this have on the IS Curve (graph and explain), on the AD curve (graph and explain), output, tax revenues and on the budget?

b. Given that we now have a balanced- budget amendment, what will policymakers have to do in this situation?

c. Based on your answers in "a" and "b", what effect does the existence of a balanced-budget amendment have on the output effects of any shock to aggregate demand?

d. Based on your analysis in question "c", what happens to the fluctuations in output caused by shocks to aggregate demand in the presence of a balanced-budget amendment?


Tutor Answer

(Top Tutor) Daniel C.
(997)
School: Purdue University
PREMIUM TUTOR
Studypool has helped 1,244,100 students
Ask your homework questions. Receive quality answers!

Type your question here (or upload an image)

1822 tutors are online

Brown University





1271 Tutors

California Institute of Technology




2131 Tutors

Carnegie Mellon University




982 Tutors

Columbia University





1256 Tutors

Dartmouth University





2113 Tutors

Emory University





2279 Tutors

Harvard University





599 Tutors

Massachusetts Institute of Technology



2319 Tutors

New York University





1645 Tutors

Notre Dam University





1911 Tutors

Oklahoma University





2122 Tutors

Pennsylvania State University





932 Tutors

Princeton University





1211 Tutors

Stanford University





983 Tutors

University of California





1282 Tutors

Oxford University





123 Tutors

Yale University





2325 Tutors