Consider a small open economy in the short run where the government decreases th
ID: 1199363 • Letter: C
Question
Consider a small open economy in the short run where the government decreases the tax rate.
(a) Given a floating exchange rate sketch a graph of the impact of the tax decrease
(b) What direction (+/-/or no change) does the tax decrease impact: Y, Money Demand, r, e, and C
(c) Given a floating exchange rate sketch a graph of the impact of the tax decrease
(d) What direction (+/-/or no change) does the tax decrease impact: Y, Money Demand, r, e, and C
(e) You own a hat company which sells both domestically and abroad. Therefore your total sales are a function of the exchange rate and total domestic consumption. Which regime would your prefer in the case?
Explanation / Answer
B) Decreasing direct tax show the positive impact on the economy,beacause it not only increase money supply but also increase demand and production in the economy.
E)if government decrease tax both direct and indirect tax this will increase the demand in the domestic market.so would prefer domestic market for selling the hat.