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- 2. Which of the following is a fiscal policy that would increase aggregate demand in the short-run? (A) A decrease in personal income taxes (B) A decrease in government spending (C) An increase in corporate income taxes (D) A purchase of government bonds by the Federal Reserve1. Subsidy on inputs 2. Higher interest rates on treasury bonds3. Higher business tax Identify whether each number either: (Select one choice per number) (A) increase inflation(B) decrease inflation(C) does not directly affect economic growth or cannot be determinedThe government will be decreasingincome taxes. To an entity producingluxury bags, it would: A. Expect lower economic growth and may plan to produce less of these bags.B. Expect higher economic growth and may plan to produce more of these bags.C. Expect lower economic growth and may plan to produce more of these bags.D. Expect higher economic growth and may plan to produce less of these bags.
- Through utilizing fiscal policy, i.e. varying ________ and/or ___________, governments achieve goals for output and employment growth as well as price stability.a. interest rates, financial liberalizationb. inflation, tax elasticityc. tax rates, government spendingd. interest rates, tax ratesIf the U.S. Treasury deposits income tax receipts into its account at the Federal Reserve, then a. the money multiplier will decrease b. the money multiplier will increase c. the monetary base will decrease d. the monetary base will increase Expected inflation can be estimated as a. the return on a TIPS bond b. the return on a Treasury bond c. the return on a TIPS bond minus the return on a Treasury bond d. the return on a Treasury bond minus the return on a TIPS bond A decrease in the expected return on stocks will a. shift the demand curve for bonds leftwards b. shift the demand curve for bonds rightwards c. shift the supply curve for bonds leftwards d. shift the supply curve for bonds rightwards Which of the following is part of M2? a. Small time deposits b. Money market mutual funds c. Currency held by foreigners d. All of the aboveSuppose Congress changed the tax laws in a way that (1) permitted equipment to be depreciatedover a shorter period, (2) lowered corporate tax rates, and (3) reinstated the investmenttax credit. Discuss how each of these changes would affect the relative use of leasingversus conventional debt in the U.S. economy.
- Increasing a country's risk-free rate could _______ the cost of equity to an MNC in that country; increasing a country's risk-free rate could ________ the cost of debt to an MNC in that country, assuming that the other things held constant. A. increases; not affect B. not affect; increase C. increase; increase D. not affect; not affectHow would each of the following changes tend to affect aggregate (i.e., the average for allcorporations) payout ratios, other things held constant? Explain your answers.a. An increase in the personal income tax rateb. A liberalization of depreciation for federal income tax purposes—that is, faster tax write-offsc. An increase in interest ratesd. An increase in corporate profitse. A decline in investment opportunitiesf. Permission for corporations to deduct dividends for tax purposes as they now deductinterest expenseg. A change in the Tax Code so that realized and unrealized long-term capital gains inany year are taxed at the same rate as ordinary incomeWhat effect would each of the following events likely have on the leavel of nominal interest rates? a. Households dramatically increase their savings rate. b. Corporations increase their demand for funds following an increase in investment opportunities. c. The govenment runs a larger-than-expected budget deficit. d. There is an increase in expected inflation.
- Which of the following will increase the WACC for a tax-paying company? Decrease the proportion of equity financing Decrease the proportion of debt financing Decrease the market value of the equity Increase the market value of the debtConsider country G, which is a closed economy. Suppose that G’s investment is 200, disposable income is 900 and the consumption 650. Answer G’s public saving and if government spending G is more than, less than or equal to the tax T. what is the public saving?:G (more than, less than or equal to the tax T)?:What effect would each of the following events likely have on the level of nominalinterest rates?1. Households dramatically increase their savings rate.2. Corporations increase their demand for funds following an increase in investmentopportunities.3. The government runs a larger-than-expected budget deficit.4. There is an increase in expected inflation.
