Homework answers / question archive / 1

1

Economics

Share With

1.Suppose supply is perfectly inelastic, while demand is relatively elastic. A tax of $1.0 is levied on the purchasers of goods. Which of the following statements is correct?

2.

1. COVID-19 has sent the economy of Classica into recession. The finance ministry has advised the government to lower stamp duty and other purchase service charges for those wanting to buy existing houses in order to boost economic growth. As well, the finance ministry wants the government to also cut company taxes as this will lead to firms increasing their level of investment in the economy. The President of Classica has asked you, as her chief economic advisor, for your views. In particular, she wishes to know the following:

1. Would a cut in stamp duty and other purchase charges on the purchase of existing houses really boost the economy? Your advise on this is ____________________ (provide your answer and justification on both the immediate and future impact. Feel free to use external resources to assist you in your answer if you prefer).                                                                                                                              (5 marks)
2. Is the claim that lower company taxes adding to investments correct or is it debatable given the prediction on economic growth remains negative, and can you explain why? Your advise on this is ____________________ (provide your answer and justification. Feel free to use external resources to assist you in your answer if you prefer).                                                                                        (5 marks)

iii) Your father has just stated that countries with high levels of debt-to-GDP ratios are poor countries and that countries with low levels of debt-to-GDP ratios are rich countries. Explain why you agree or disagree with this statement and provide real world evidence to support your argument.   

3.

1. Inflation in Theoretica is currently below the target range of its central bank. What does this tell you regarding Theoretica’s likely output gap? Illustrate it using an AS-AD diagram, and briefly explain your diagram                                                                            (5 marks)

2. Your mother states that lowering interest rates in the recessionary COVID-19 period is good policy because it will guarantee consumers will spend more as it is cheaper to borrow money. Do you agree or disagree with her statement? Provide two reasonings to justify your answer.                                                                                   (5 marks)

c. Is either helicopter money or quantitative easing preferred in times of severe recessions in order to boost economic activity? Briefly explain your reasoning.