MACROECONOMICS

Macroeconomics

Macroeconomics

Question 1

Monetary policy is carried out by the reserve system to change the money supply. When the reservation system increases the money supply is called expansionary policy. When the reserve system the money supply decreases, the policy is called contraction. These policies, like fiscal policy, can be used to control the economy. Under expansionary monetary policy the economy expands and increases production. Under the policy of monetary contraction of the economy shrinks and decreases the production. We will investigate how the reservation system affects the money supply. (Aguirre, 2004, 1).

Expansionary monetary policy includes the purchase of government bonds, reducing reserve requirements, and reduced the rate of interest on reserve funds. contractionary monetary policy entail the sale of government bonds, increasing reserve requirements, and increasing the rate of interest on reserve funds. Remember that the point of monetary policy is to allow the Reserve system to control the economy, and in particular the production and inflation through interest rates. Monetary and fiscal policy are held as the queen of the reserve system that runs the great horse, wild known as economics. The interest rate changes when the reserve system of monetary policy. In general, when the backup system uses expansionary monetary policy, expanding the money supply, interest rates low. The reason for this change can be conceptualized in two ways. First, given a constant demand for money, when money is widely available in the economy through expansionary monetary policy, interest rate decreases as people are willing to make loans and reluctant to borrow. (Ballentine, Gregory, Eris, 2000, 44)

Question 2

The first step is to understand that the person giving the government money is not necessarily the person who actually pays the tax. To use economic jargon, there is a difference between "legal incidence" (the law says you pay the tax) and "economic impact" (which is actually made worse by the tax). Take an example: firms in the UK are supposed to pay a tax (the "Contribution of employer National Insurance") for each of its employees. As its name suggests, this tax is supposed to be paid by the company, not the worker. That sounds like a great idea - politicians are willing to companies "pay their fair share," after all. But what if the company simply reduces the wage of the amount of tax? Then the tax is not actually being paid by the company at all - that is being paid by workers through lower wages. So the company hands over the money ("legal incidence"), but the worker is worse off ("economic impact"). (Anderson, Palma de Mallorca, Kreider, 2005, 92) That's the basic theory fiscal impact, but the incidence of fiscal measurement in practice is not easy. Many things happen in the economy that can affect prices, wages and benefits, not related to taxation. To accurately identify the incidence of taxes one must be able to isolate what is purely an effect of the tax burden is due to macroeconomic shocks. (Auerbach, Santiago, 2001, 1347)

The incidence of corporation tax is ...