Author Question: The impact of a change in taxes on income is likely to be less than the effect resulting from a ... (Read 51 times)

genevieve1028 · **on:** Jun 30, 2018

The impact of a change in taxes on income is likely to be less than the effect resulting from a change in government spending since ________.

A) the federal government typically operates in a deficit situation
B) exports and imports can only assume positive values, but net exports can be positive or negative
C) changes in the supply of money will be necessary if government spending is increased
D) changes in taxes exert an indirect impact on total spending through changes in consumption

Question 2

Consumption per worker is 72, depreciation is 12.5, and capital per worker is 64. Given the production function y = 20 , show that this economy is in a steady state.

If the saving rate should double, what is the new steady-state level of consumption per worker?

AmberC1996 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

D

Answer to Question 2

The steady-state capital-labor ratio k = . Plugging the values above into this equation yields s = 0.1. Putting the given value of k into the production function yields y = 80, so the given value of consumption per worker implies s = 0.1. This is a steady state. (As further confirmation, note that 64 0.125 = 8 = saving, so the loss of capital due to depreciation is exactly restored by investment.) If s = 0.2, then k = 181, so y = 113, and consumption per worker is 113 0.8 = 90.