MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
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Chapter 11, Problem 10SQP
To determine
Movement of the economy on the Laffer curve.
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Suppose Congress enacts a tax reform law, and the average federal tax rate drops from 30 per- cent to 20 percent. Researchers investigate the impact of the tax cut and find that the income subject to the tax increases from $600 billion to $800 billion. The theoretical explanation is that workers have increased their work effort in response to the incentive of lower taxes. Is this a movement along the downward-sloping or the upward-sloping portion of the Laffer curve?
As part of your job as an economist at the Department of Work and Pension, you regularly advise ministers on various economic and social
policies that the government plans to introduce. The government is considering a welfare policy to help people to get out of poverty while at the
same time reducing the incidence of "out of work" in the population. The ministers are considering whether to (1) give people a cash grant or (2)
an earned income tax credit, which pays those in work 30% of the hourly wage they receive from their employer.
Discuss the merit of each policy and their implications for labour supply. Make use to illustrate your answer with the use of diagram(s) and to
make reference the existing empirical evidence (i.e., from existing studies).
The data shows that an increase in the
Provincial Minimum Wage of 60% in City A
in 1999 did not lead to an increase in
unemployment. On the other hand, the
same amount of increase in the Provincial
Minimum Wage in City B actually causes
the number of unemployed to increase.
According to one economist, this is
because the calculation of the increase in
the Provincial Minimum Wage in City B
does not pay attention to the amount of
wages that should apply, so that it is
burdensome for entrepreneurs and they
are forced to lay off their workers. You are
asked to provide a theoretical basis (with a
labor supply-demand curve) why an
increase in the minimum wage in City A
and City B, despite having similar
increases, has different effects.
Chapter 11 Solutions
MACROECONOMICS FOR TODAY
Ch. 11.3 - Prob. 1YTECh. 11 - Prob. 1SQPCh. 11 - Prob. 2SQPCh. 11 - Prob. 3SQPCh. 11 - Prob. 4SQPCh. 11 - Prob. 5SQPCh. 11 - Prob. 6SQPCh. 11 - Prob. 7SQPCh. 11 - Prob. 8SQPCh. 11 - Prob. 9SQP
Ch. 11 - Prob. 10SQPCh. 11 - Prob. 11SQPCh. 11 - Prob. 1SQCh. 11 - Prob. 2SQCh. 11 - Prob. 3SQCh. 11 - Prob. 4SQCh. 11 - Prob. 5SQCh. 11 - Prob. 6SQCh. 11 - Prob. 7SQCh. 11 - Prob. 8SQCh. 11 - Prob. 9SQCh. 11 - Prob. 10SQCh. 11 - Prob. 11SQCh. 11 - Prob. 12SQCh. 11 - Prob. 13SQCh. 11 - Prob. 14SQCh. 11 - Prob. 15SQCh. 11 - Prob. 16SQCh. 11 - Prob. 17SQCh. 11 - Prob. 18SQCh. 11 - Prob. 19SQCh. 11 - Prob. 20SQ
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- Proponents of the minimum wage argue that it will not reduce employment. Opponents argue the opposite. What factor determines who is correct in this debate, and under what condition will each side be correct? Use a diagram to explain your answer. Proponents of the minimum wage argue that it will not cause unemployment. Opponents argue the opposite. What two factors determines who is correct in this debate, and under what conditions will each side be correct? Use a diagram to explain your answer. Proponents of the minimum wage argue that it will not create deadweight loss. Opponents argue the opposite. Under what condition will each side be correct. In light of this, what do you conclude are the likely effects of a minimum wage?arrow_forwardYou're a staffer working for Senator Joe King, a diehard opponent of minimum wages. The Senator wants to persuade other members of Congress to oppose a new proposal to raise the minimum wage. He needs you to calculate the cost to society of a $17 minimum wage according to the neoclassical model of labor markets. Suppose the market for labor has the equations LD= 172 - 4W LS= -30 + 23W where W is the wage and L is the number of workers. Give your answer in dollars, rounded to the nearest integer.arrow_forwardSuppose the minimum wage in this economy is $8.70 per hour. An unemployed worker is defined as someone who is willing to work at the prevailing wage but is unable to find employment. Because the minimum wage lies above the equilibrium wage, it is binding, which means it is also the prevailing wage. If the wage is not allowed to fall below $8.70 per hour, the size of the unskilled labor force is workers are considered unemployed. The unemployment rate is defined as the percentage of unemployed workers in the labor force: Unemployment Rate = Unemployed Labor Force x 100 At a minimum wage of $8.70 per hour, the unemployment rate among unskilled workers is approximately workers, and unskilled 4arrow_forward
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