(b) (10 points) We discussed numerous times the possible impact of the recent cut in the corporate tax rate down to 21%. We also discussed how good the economy is doing and how the stock market is at near record highs.
Suppose that the corporate tax cut results in firms investing in more capital so that capital (K) goes up to equal 12. At the same time, the wealth created by the roaring stock market changes labor supply so that labor supply is given by: NS= 5 + 2w
Find the equilibrium real wage rate, the full employment level of employment, and the full-employment level of output for this economy and label on your diagrams as point B.

Leave a Reply

Your email address will not be published. Required fields are marked *