Author Question: If there are human capital externalities, then A) human capital should be taxed. B) convergence ... (Read 63 times)

dejastew · **on:** Jun 30, 2018

If there are human capital externalities, then

A) human capital should be taxed.
B) convergence in per capita incomes occurs.
C) differences in human capital across countries can persist.
D) pollution is a problem.

Question 2

Suppose a tax cut that had been anticipated by households and businesses doesn't happen. Describe a new Keynesian analysis of the consequences of this event.

What will be an ideal response?

tanna.moeller · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

C

Answer to Question 2

The non-occurrence of an anticipated tax cut has the same effect as an unanticipated tax increase: the aggregate demand curve shifts to the left. As output falls below potential and inflation falls, the decrease in expected inflation increases aggregate supply, so output begins to recover and inflation falls further. Eventually, output returns to potential. Aggregate demand may or may not shift back to the right, depending on the response of monetary policy to the lower inflation rate.