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[answered] 1) Drought Shock 7 5 3 1 -2% -1% 0 1% 2% 3% 4% 5% 2) Tax De


Question 1

Beginning in 2013, the economy of the Southwest and Western United States was hit by a series of droughts. ??Before the shock the Solow Growth rate ( potential GDP growth) was 2%, expected expenditures (nominal GDP) are at 4% and expected inflation is at 2%.? After the shock assume that Solow Growth decreases to 0%, expenditure (nominal GDP expenditure growth stays at 4%) and that in the long run inflation expectations increase to 6%.

Attached are?partially constructed graphs in a word file. You will use the first one to complete this problem.??Complete the following steps to answer the question:

1) Label all of the Before the Shock curves in the first graph in the MSWord document, label the Before the Shock performance of the economy, and label the axes.

2) Describe what you have done in words in the "short answer" test section for this problem. Show step by step the impacts of the drought shock on the SCG and Short Run Aggregate Supply curve on the graph, label the After Shock performance and label the new curves and results along the axes. The steps should include: Which direction did the SCG curve shift, which direction the SRAS curve shifted, what happened to growth in RGDP, the inflation rate, and unemployment rate in the long run.

Question 2

The Affordable Healthcare Act of 2010 is now implemented.? There are 21 taxes included in the Act itself.? In addition the Congressional Budget Office now estimates that instead of the $890B 10-year price tag that the cost will be in excess of $2.3T.? In 2016, Donald Trump is elected President and immediately?pushes for a decrease in income taxes on individuals and corporations and a repeal of the Affordable Healthcare Act. ?

Before the introduction of the tax change, the Solow Growth rate (potential GDP growth) was 2%, expected expenditures (nominal GDP) are at 4% and expected inflation is at 2%.?

In the short run, After the change assume that growth of real GDP increases to 4% and that growth of nominal GDP (expenditures) rises from 4% to 7%.? In the long run the economy adjusts and expected inflation rises to 5%.


?(Do not shift the Solow growth curve for this question)


You will find a set of two partially constructed graphs in a word file attached.? You will use the second one to complete this problem.?Complete the following steps to answer the question:


Label all of the Before the Tax Change curves in the first graph in the MSWord document, label the Before the Tax Change performance of the economy, and label the axes.

Describe what you have done in words in the "short answer" test section for this problem.

?Short run: Show step by step the impacts of the tax change on the graph, label the After the Tax Change performance and label the new curves and results along the axes in the short run.? The steps should include: Which direction did the appropriate curve shifts, what happened to growth in RGDP, the inflation rate, and unemployment rate in the short run.

Long run: Show step by step the impacts of the tax change on the graph, label the After the Tax Change performance and label the new curves and results along the axes in the long run.? The steps should include: Which direction did the appropriate curve shift, what happened to growth in RGDP, the inflation rate, and unemployment rate in the long run.


1) Drought Shock 7 5 3 1 -2% -1% 0 1% 2% 3% 4% 5% 2) Tax Decrease and repeal of the Affordable Healthcare Act 9% 7% 5% 3% 1% 0% -1% -1% 0% 1% 2% 3% 4%

 


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