Read the statement by Jerome Powell, Chair of the Board of Governors of the Federal Reserve System before the Joint Economic Committee . Mr. Powell says that “Putting the federal budget on a sustainable path would aid the long-term vigor of the U.S. economy”.
1. On December 22, 2017, the Tax
Cuts and Jobs Act (the “TCJ Act”) was passed, cutting the tax rates for
corporations very significantly from 35%
(a) Using the IS-MP framework,
describe what happens to investment and short-run output when there is a large cut in corporate taxes.
(a) The FRED database contains data
for Real Gross Private Domestic Investment showing
the change in investment year-on-year. Use the FRED database and download the
time series. Use quarterly frequency.
(b) In general, has the investment
become more or less volatile since 1950?