1. Suppose you read in the newspaper that on Monday the Fed conducted open market purchases and that on Wednesday of the same week, it lowered the discount rate. What would you say the Fed is trying to do? What would be the fiscal policy reaction (the president and Congress) to the same issue the Fed is addressing? Which policy action, monetary or fiscal, would shift the AD curve the quickest? Why?
2. “The Tax Cuts and Jobs Act of 2017 (TCJA) makes small reductions to income tax rates for most individual tax brackets and significantly reduces the income tax rate for corporations. It also provides a large new tax deduction for owners of pass-through entities and significantly increases individual alternative minimum tax (AMT) and estate tax exemptions. And it makes major changes related to the taxation of foreign income.
The top rates, which for 2017 kick in at $418,400 of taxable income for single filers and $470,700 for joint filers, for 2018 take effect at $500,000 and $600,000, respectively. The brackets will continue to be adjusted for inflation. Be aware, however, that the TCJA calls for annual inflation adjustments to be calculated using the chained consumer price index (also known as C-CPI-U). This will increase tax bracket thresholds at a slower rate than is the case with the consumer price index previously used. C-CPI-U also will apply to the standard deduction, certain exemptions and other figures. The change could potentially push taxpayers into higher tax brackets more quickly and make various breaks worth less over time. The law adopts the C-CPI-U on a permanent basis.”
Smith and Howard Certified Public Accountants and Advisers
a. What was the initial intended impact of this legislation on the economy?
The TCJA also includes a bevy of changes that will affect taxpayers who conduct foreign operations. In conjunction with the reduced corporate tax rate, the changes are intended to encourage multi- national companies to conduct more operations in the United States, with the resulting increased investments and job creation in this country.
b. What is your opinion of the long-term impact of this landmark legislation on AD, AS and the price level?