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Suppose that an investment tax credit is stated to be temporary in nature, and the credit will be 10% on newly acquired capital (investment) equipment and will last just one year only.
a. What would you predict to be the effect of this tax credit in the long-run (say, 5 or 6 years)?
b. What would you predict to be the effect of this tax credit in the current year and the following year?
c. How would your answers to parts (a) and (b) differ if the tax credit were permanent?
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Why is it important for policymakers to consider both the direct and indirect effects of public policies?
THE MODEL BUILDING A model of individual or aggregate economic phenomena represents a simplification of real world economic complexities. It may be expressed in words, ta
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