The Tax Cut and Jobs Act was passed by Congress in December 2017. GDP grew from $18,000

Question:

The Tax Cut and Jobs Act was passed by Congress in December 2017. GDP grew from $18,000 billion (2012 dollars) in 2017 to $18,500 billion (2012 dollars) in 2018.

a. By what percentage did real GDP grow from 2017 to 2018?

b. Estimates from the Congressional Budget Office suggest the tax cut in 2018 associated with the Tax Cut and Jobs Act was approximately $150 B (measured in current dollars).

The GDP deflator in 2018 (2012=100) was 110. How large was the tax cut measured in 2012 dollars?

c. If the marginal propensity to consume is 0. 6, how large was the increase in real GDP attributable to the tax cut?

d. What proportion of real GDP growth from 2017 to 2018 would be accounted for by the tax cut with a marginal propensity to consume of 0. 6?

e. You hear the argument that a tax cut will increase consumer and business confidence and cause a larger than usual increase in demand. If normal growth in US real GDP is 2%, does the effect of the tax cut in 2018 support this argument? How does your answer change if normal growth in US real GDP is 1%? We saw in Chapter 1 that normal growth in labor productivity has been closer to 1% in recent years.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Macroeconomics

ISBN: 9780134897899

8th Edition

Authors: Olivier Jean Blanchard

Question Posted: