Author Question: The inflation rate measures the percentage increase in the price level from one year to the next. ... (Read 41 times)

Mr.Thesaxman · **on:** Jun 29, 2018

The inflation rate measures the percentage increase in the price level from one year to the next.

Indicate whether the statement is true or false

Question 2

In 2003, Congress passed a tax cut that included a reduction in the marginal tax rate on stock dividends. This essentially increased the after-tax rate of return on stocks that offer dividends.

Using the loanable funds market, describe what will happen to saving, investment, economic growth, the real interest rate, and the quantity of loanable funds exchanged.

polinasid · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

TRUE

Answer to Question 2

Dividends are the portion of corporate profits paid to shareholders. They are taxed like other forms of income. When taxes on dividends are decreased, this raises the after-tax rate of return on stocks that offer dividends. Because the return to saving would increase, saving will increase and the supply of loanable funds will increase. The shift to the right by the supply curve for loanable funds should lower the real interest rate and increase the quantity of loanable funds exchanged. This will raise investment spending in the economy. As investment spending grows, the capital stock and capital per hour worked should grow, and the rate of economic growth should increase.