Explain the short-term and long-term consequences of the following events. Use phase diagrams and the dynamic equations to illustrate your answer and try to justify your results through economic intuition. Households are subject to a fix income tax r that was supposed to be in act forever. However, they are suddenly informed that the tax will be cancelled within T periods from the day of announcement.

Explain the short-term and long-term consequences of the following events. Use phase diagrams and the dynamic equations to illustrate your answer and try to justify your results through economic intuition. Households are subject to a fix income tax r that was supposed to be in act forever. However, they are suddenly informed that the tax will be cancelled within T periods from the day of announcement.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 1.7P

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