An important component of U.S. President Joe Biden's "Inflation Reduction Act" was an increase in the corporate profits tax rate.

a)

Explain how each of the five decisions (labor demand, labor supply, consumption, investment, and the allocation of wealth between domestic and foreign bonds) is affected by an increase in the corporate profits tax rate.

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In an article in The Wall Street Journal entitled "Cost of Democrats' Corporate-Tax Increase Skews to Wealthy, Reaches Middle Class" the author of the article reported that, "Business groups such as the U.S. Chamber of Commerce and Industry are warning that the tax would deter investment, ...."

The article also contained an assessment of the increase in the corporate profits tax rate provided by the conservative-leaning Tax Foundation. Specifically, the article states, "After accounting for economic effects, the Tax Foundation estimates that long-run gross domestic product would be slightly lower than it would be without proposal ... ".

b) Combine your answers in part a) to evaluate the above quotes. Specifically, explain what the closed-economy model predicts will happen to output, investment and consumption when there is an increase in the corporate profits tax rate.

Explain using graphs and words.

c) Should your answers in part b) change if you based them on the small open-economy model? If yes, explain why and how. If no, explain why not.