In the short-run, a larger government deficit would cause an increase to “total planned expenditures and higher aggregate demand “(Miller, 2012, pg. 308). The real GDP equilibrium would rise above the full-employment level because of deficit spending. The price level would also increase. In the long-run, the economy “adjusted to changes in all factors” and the “equilibrium real GDP remains at its full-employment level” even though the increase in the budget deficit causes a rise in the aggregate demand.
The theory behind this was that if taxes were increased or left at their same rate, the amount of money brought into the government would be x. But if taxes are cut, GDP rises. The rise in GDP plus the lower taxes would be greater than x, causing an increase in tax revenues. This would push the supply curve to the right also increasing real Gross
President Barack Obama Tax Cut Proposal President Obama proposed a new minimum tax rate for individuals making more than $1 million a year to ensure that they pay at least the same percentage of their earnings as middle income taxpayers. He called his proposal the “Buffett Rule,” in reference to Warren E. Buffett, the billionaire investor who has complained repeatedly that the richest American generally pay a smaller share of their income in federal taxes than middle-income workers, because investment gains are taxed at a lower rate than wages. President Obama’s proposal is causing the opposition from Republicans, who have opposed raising taxes on the affluent Americans because they said, it would discourage investment. According to IRS reports, there were about 237,000 millionaires, or about 0.1 percent of all filers, that filed income tax returns in 2009. There were about 8,000 filers who reported gross incomes of more than $10 million.
Fin 517 Ch. 15 Notes Debt and Taxes 15.1 The Interest Tax Deduction 1. interest tax shield – additional amount that a firm would have paid in taxes if it did not have leverage. Interest tax shield = corporate tax return X interest payments 2. because interest expense is tax deductible, leverage increases the total amount of income available to all investors 15.2 Valuing the Interest Tax Shield 1. when a firm uses debt, the interest tax shield provides a corporate tax benefit each year. 2. Because the cash flows of the levered firm are equal to the sum of the cash flows from the unlevered firm plus the interest tax shield, by the Law of One Price the same must be true for the present values of these cash flows.
Monetary policy is the use of interest rates to manipulate the level of aggregate demand in the economy and loose (expansionary) monetary policy is a reduction in the interest rates. This will result in an injection of extra consumption because it is cheaper to borrow money on credit cards and therefore allowing consumers to spend more which will cause an increase in aggregate demand (AD). Additionally, extra consumption will allow shops to gain more profit preventing “business failures.” Furthermore, mortgages will be cheaper and therefore consumers feel richer and there will an extra injection of consumption. AD will also increase due to an increase in investment, causing an increase in aggregate demand from AD1 to AD2 as shown below. However,
When the demand for U.S. dollars increases, the value of the dollar will increase or appreciate (Stone 2008, pp. 685). As a result, U.S. products become more expensive for foriegners causing a reduction in exports and increasing imports. This not only effects the U.S. economy, but also affects the economies in other countries. Monetary policies influence and are influenced by international developments, including exchange rates, and based on these market conditions the U.S. government can make strategic changes to these policies to maintain the country’s economic stability (full employment, stable growth and price stability).
An increase in wages will increase the average variable cost. The more people required to produce additional units of output will be more expensive due to an increase in wages. A lower material cost will result in a lower average variable cost because more units can produced at a lower cost. If the firm produces the same amount of units the cost will fall. The fixed tax will not change the average variable cost.
If the sales outlook for the coming three years was only 20,000,000 and B.E. continued producing at the rate of 30,000,000 units, a total of 10,000,000 units would be dumped into ending inventory at the end of each year once again reducing costs of goods sold and falsely increasing income. By the end of year 2013, B.E. Company would have 35,000,000 units sitting in ending inventory taking up space and costing money to store. Once again if the president’s bonus is based off of net income, this situation is the most favorable for a high paying bonus and encourages stockpiling inventory to inflate net income.
of Reagan’s tenure, the budget deficit was $141b. The federal government being able to collect more revenue as an ultimate result of the lowered taxes is a main goal of supply-side economics. In the 1980s, federal revenue grew from If measured as a share of GDP, By the
Wolsey's greatest achievement was replacing the traditional fifteenths and tenths system of taxation to a system that was fairer to people in comparison to what they earned. It was based on the amount people could afford to pay. Commissioners went round and assessed the wealth of people around the country, then greater taxes were placed on the rich. Between 1513 and 1516 the subsidy raised 170000 while fifteenths and tenths raised only 90000. ---------------------- In 1523 Wolsey demanded 800000 in taxation from parliament.