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Show the Impact of Tax Reduction and Simplification Using the Dynamic

question 276

Essay

Show the impact of tax reduction and simplification using the dynamic aggregate demand and aggregate supply model.Clearly show and identify the impact of the tax change.Assume that aggregate demand and short-run aggregate supply shift as they typically do in the dynamic model.Show what happens to the price level and real GDP because of the tax change.


Definitions:

Balance Sheet

A report detailing a company's assets, liabilities, and equity of shareholders at a certain date.

Net Profit/Pretax Profit Ratio

A financial metric that compares the net profitability of a business to its earnings before taxes, indicating the portion of income retained after accounting for all expenses.

Leverage Ratio

A financial ratio that measures the amount of debt used in a company's financing structure relative to its equity or other assets.

Pretax Profit/EBIT

Earnings before interest and taxes, a measure of a company's profitability that excludes interest and income tax expenses.

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