Homework 6 Due by Friday, midnight 1. (50 points) Suppose that the government wants to increase the investment, and is considering two tax policies to accomplish this goal. Under the first tax policy, in the current period firms would receive a subsidy of t per unit of output produced. Under the second policy, firms would receive a subsidy of s per unit of investment in the current period. Determine which tax policy would be more effective in accomplishing the government's goal of increasing current investment expenditures. Also, analyze the effects of these policies on output produced, employment, consumption, real interest rate and wage. 2. (50 points) Using two-period real intertemporal model we studied in chapter 11, an- swer the following questions: (a) Analyze the effects of a decrease in productivity on equilibrium prices (wages and interest rates) and quantities (output, consumption, employment and investment). (b) Now, suppose that the decrease in productivity also effects the tax collection ef- ficiency of the government. Therefore, for the same amount of spending, the government needs to collect a higher amount of taxes. Given this additional ef- fect, revisit your results in part (a), analyze the additional changes in equilibrium prices and quantities. R 9