Suppose the government decides to decrease the amount of investment spending that firms are allowed to depreciate for tax purposes from 50% to 25%, effective next year
What effect should this change have on the desired capital stock and the level of investment spending next year? Use a graph to explain your answer.
If depreciation is decreased, the tax rate on investment projects next year has effectively increased, so the after-tax user cost of capital curve will shift up, from uc1 to uc2. This decreases the desired capital stock from K*1 to K*2. The decrease in the desired capital stock means the gap between the desired capital stock and yesterday's capital stock has decreased, so firms will decrease investment spending today to try to decrease the capital stock toward the desired level.
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The above figure gives your budget line between CDs and magazines. If the price of a magazine increased, then the budget line
A) shifts outward and the slope does not change. B) rotates inward with no change in the horizontal intercept. C) rotates inward with no change in the vertical intercept. D) rotates outward with no change in the vertical axis.
Refer to Table 2-19. What is Wilma's opportunity cost of making a statue?
A) 3 benches B) 1/3 of a bench C) 6/7 of a statue D) 1/2 of a bench
If a country has a bowed out (concave to the origin) production possibility frontier, then production is said to be subject to
A) constant opportunity costs. B) decreasing opportunity costs. C) first increasing and then decreasing opportunity costs. D) increasing opportunity costs.
What are the limitations to the Fed's independence?
What will be an ideal response?