FREE RESPONSE QUESTIONS. Answer the questions exactly as directed.

27. Consider a community (k) with the following characteristics/initial conditions: Ek,0 (expenditure on education per pupil) = $8,000 tk (property tax rate) = 6(2 / 3)% 0.0667 Vk (property value per pupil) = $120,000 Yk (income) = $80,000) p (price elasticity of demand for education) = - 0.5 Y (income elasticity of demand for education) = 1.0 Suppose the state provides a Guaranteed Tax Base grant with a base grant (B = $1,000) with the following formula: Gi =+ $1, 000 max 0, $150, 000 { ( V t i i ) }

(a) What is the effect of the base grant ($1,000)(B) on education spending per pupil (E)? That is, by how much would you expect community k to increase education spending per pupil based on the base grant (how much would E increase)? Use whole numbers (no decimal places) with no "," or "$" [if relevant]

(b) What is the effect of the guaranteed tax base [max 0, $150, 000 { ( V t i i ) }] on education spending per pupil (E)? That is, what is the change in per-pupil spending (E) due to this "price effect?" Use whole numbers (no decimal places) with no "," or "$" [if relevant]

(c) What is community k's total desired level of per-pupil education spending (E) after the GTB grant is provided? Use whole numbers (no decimal places) with no "," or "$" [if relevant]

(d) Suppose community k uses the necessary amount of the grant to raise education spending to its new desired level and uses the remainder to reduce property taxes. What will be the new property tax rate? Your answer will be a percentage. Express it in the form of a decimal to 2 decimal places, e.g., if the answer is 7.18% = 0.0718, you would answer 0.07. Or if it was 3.88% = 0.0388, you would answer 0.04. If a decimal place is a "5," then round up; i.e., 0.0225 = 0.23.