Answer to Question #189602 in Macroeconomics for Catherine

Question

Starting from general equilibrium, what would be the long-run effects of a simultaneous reduction in personal taxes (T↓), increased government purchases (G↑), and revenue-neutral reduction in the capital tax rate (τ↓) on

1. Real GDP (Y)
2. The real interest rate (r)
3. Investment (I)
4. Consumption (C) (recall, the effect of disposable income exceeds the small effect of the interest rate)
5. The price level (P)
6. Budget deficit (G – T)
7. The nominal exchange rate (e_nom)
8. Exports (EX)
9. Imports (IM)
10. Net exports (NX)

Answer 1

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