Question

4) a. Suppose that the Federal Government under Donald Trump Administration announced a tax rebate of $500 for all individuals filing singly and $1000 for all families filing jointly or as head of household in the upcoming tax year. Further, suppose that the Government budget included a broad-based reduction in Government spending on goods and services, whose total amount was equal to the total amount of the tax rebates. What would be the overall impact on AD of this policy change, or would the policy change effects completely cancel each other out? Hint: Tax rebate (A negative tax and direct government expenditure in infrastructure development and construction do not have an identical effect in magnitudes). Need to look at both tax multiplier and Government expenditure multiplier explained in the textbook) Explain your answer in detail. 4 pts

4) b. Trump’s imposition of $260 billion tariff in the Month of May 2019 (taxes on imports to the US Market) on Chinese exports to the US has caused a global tension in financial markets and related business activities. In retaliation of Trump’s tariff, China also imposed almost similar amount of tariff on US exports to China about $200 billon. In response to this trade war between the US and China, the US stock price indices of the Wall Street plummeted in May and June 2019. Th stock market in Shanghai in China also crashed at the same time. The data on new job for the US economy in May showed a very slow rate jib creation at the same time. Given this scenario from the US-China trade war and given your knowledge on macro model of AD an AS, do you think the recession is in the horizon to hit the US economy in early 2020? Give your reason in your opinion as to why or why not the case. 4 pts

Answer 1