Policymakers who want to stabilize the economy must decide how much to change the money supply,…
Policymakers who want to stabilize the economy must decide how much to change the money supply, government spending, or taxes Option. Why is it difficult for policymakers to choose the appropriate strength of their actions? Solve The problem of time inconsistency applies to fiscal policy as well as to monetary policy Option. Suppose the government announced a reduction in taxes on income from capital investments, like new factories Option. a Option. If investors believed that capital taxes would remain low, how would the government’s action affect the level of investment? Solve b Option. After investors have responded to the announced tax reduction, does the government have an incentive to renege on its policy? Solve Explain Option. c Option. Given your answer to part (b), would investors believe the government’s announcement? Solve What can the government do to increase the credibility of announced policy changes? Solve d Option. Explain why this situation is similar to the time-inconsistency problem faced by monetary policymakers. May 17 2022 08:02 PM
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