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Author Question: How can tax simplification be beneficial to the economy? What will be an ideal ... (Read 91 times)

rosent76

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How can tax simplification be beneficial to the economy?
 
  What will be an ideal response?

Question 2

How is the impact of contractionary monetary policy different in an open economy than in a closed economy?
 
  What will be an ideal response?



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bookworm410

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Answer to Question 1

Tax simplification would free up resources in the economy. The complexity of the tax code has created an entire industry to assist taxpayers in preparing their tax forms. If tax simplification reduces the need for tax preparation assistance, the resources used in this industry could be allocated to some other productive endeavor. This is beneficial, as it would reduce wasted resources.
Simplifying the tax code would increase economic efficiency by reducing the time and trouble firms and households spend solely to reduce their tax payments.

Answer to Question 2

In an open economy, the higher interest rate resulting from contractionary monetary policy will affect not only consumption and domestic investment, but it will also affect net exports and net capital flows. Higher interest rates will increase capital inflows and reduce capital outflows, resulting in an increase in the exchange rate which will reduce net exports. The result is that monetary policy has a stronger effect in an open economy than in a closed economy.



rosent76

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