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Math Help - Please Help with My Econ- Aggregate Supply and Demand

  1. #1
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    Please Help with My Econ- Aggregate Supply and Demand

    Hello would someone please help me solve these problems? I don't even know what equation I am supposed to be using or really understand these questions:

    1. If AS decreases by $40 billion for every 1 percentage point increase in tax rates, by how much will AS decrease when the tax rate is raised from 32% to 34%?

    2. If AD shifts by $40 for every $1,000 change in consumer wealth, by how much will AD increase when the stock market rises in value by $300 billion?

    If someone could please give me a thorough explanation as well, I am very confused.
    Thank you!!!
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  2. #2
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    Re: Please Help with My Econ- Aggregate Supply and Demand

    Quote Originally Posted by Cheryl89 View Post
    Hello would someone please help me solve these problems? I don't even know what equation I am supposed to be using or really understand these questions:

    1. If AS decreases by \$40 billion for every 1 percentage point increase in tax rates, by how much will AS decrease when the tax rate is raised from 32% to 34%?

    2. If AD shifts by \$40 for every \$1,000 change in consumer wealth, by how much will AD increase when the stock market rises in value by \$300 billion?

    If someone could please give me a thorough explanation as well, I am very confused.
    Thank you!!!
    reposted with \$ signs fixed
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    Re: Please Help with My Econ- Aggregate Supply and Demand

    Quote Originally Posted by romsek View Post
    reposted with \$ signs fixed
    1) how many percentage points do taxes increase when going from a tax rate of 32% to 34% ? How much does the AS decrease per point? So what is the total decrease in AS?

    2) How much does consumer wealth increase when the stock market rises by 300 billion? How much is that in increments of \$1000? How much does the AD shift per \$1000? So what is the total shift in the AD?
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  4. #4
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    Re: Please Help with My Econ- Aggregate Supply and Demand

    I still don't understand. The percentage point is 0.02? And it decreases 0.01 per point? But I don't get what formula to use to solve now?

    And for the second one am I supposed to divide 300 billion by $1000 to solve?
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  5. #5
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    Re: Please Help with My Econ- Aggregate Supply and Demand

    Quote Originally Posted by Cheryl89 View Post
    I still don't understand. The percentage point is 0.02? And it decreases 0.01 per point? But I don't get what formula to use to solve now?

    And for the second one am I supposed to divide 300 billion by $1000 to solve?
    Yes, if tax rates go up from 32% to 34%, then tax rates have increased by 34% - 32% = 2 percentage points. You are overthinking things. It is as mind bendingly simple as that. And for each percentage point increase in the tax rate AS decreases by 40 billion. So AS will decrease by 40 billion for a 1 percentage point increase in the tax rate, and AS will decrease by how many billion for a 2 percentage point increase in the tax rate?

    For # 2, there is an increase in AD of 40 for every increase in wealth of 1000. So yes, you need to divide 300 billion by 1000, and then do what?
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