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## Earthquake and its Impact on Production and Distribution

What was Kris’ marginal tax rate for 2014? Briefly explain. Kris’s marginal tax rate. Calculate the amount of income tax that Kris owed for 2014. Show your work. Round your answer to the nearest penny.

If an earthquake and its powerful aftershocks temporarily disrupt the production and distribution, then in long run the overall price level will increase and the level of output or GDP will stay remain same as the long-run demand will increase, but the long-run supply will remain same (Mankiw, 2015).

If political reforms lead to an improvement in institutions, then in short-run overall price level and the level of output both will increase, as in short-run both the aggregate demand and supply will increase for political reforms (Arnold, 2015).

Kris’ marginal tax rate for 2014 is 28%.

The income tax that Kris owed for 2014 is:-

10%*\$8350 (dollar 1 to \$ 8350) = \$8350

15%*\$25600 (dollar 8350 to \$ 33950) =\$3840

25%*\$48300 (dollar 33951 to \$ 82250) = \$12075

28%*\$20600 (dollar 82251 to \$ 102,850) = \$5768

Therefore, Kris’ total owed income tax = \$ 30033Therefore, the average tax rate for his federal income tax is:-

(Total income tax/ taxable income)= (\$ 30033/\$ 102,850)*100% = 29.2%

The federal government spend in 1914 is \$726 million.

In the year 2001, federal government last ran a surplus of \$128,236 million.

In 2009, the total deficit of federal government was \$ 1,412,688 million, which was the largest deficit ever run.

In 2015, the estimated deficit is \$576,472 million.

Here, blue colored curve indicates the national defence, red colored curve indicates the human resource, green colored curve indicates the physical resource and the violate colored curve indicates the net interest.

• In June. 1940, the first debt limit was \$ 49.0 billion.
• In August, 2012, the increase in the bond rating was {(15194-14694)/14694}*100% = 402749% or, 3.4% big (approximately)
• The current debt-limit of March 15, 2015 is suspended. That is, there is no data available for the current debt-limit of March 15, 2015.
• The next date at which the status of the debt limit is schedule to change is March 16, 2015 (The White House, 2015).

The Jpmorgan Chase Bank or the Jpmorgan Chase & Co. has the largest amount of consolidated assets.

• The value of the consolidated assets for the firm is \$ 2,074,952 million.
• The Wells Fargo Bank or the Wells Fargo & Co. has the highest number (6,345) of domestic branches.
• In the previous box of Wells Fargo Bank or the Wells Fargo & Co. the number of domestic branches for the listed bank (Bank of Amer Crop) is 4,913.

The value of M1 given for April 2015, not seasonally adjusted is \$ 3,026.9 billion.

The value of M2 given for April 2015, not seasonally adjusted is \$ 11,975.1 billion.

Among the twelve Federal Reserve Banks, New York has the largest portfolio of assets \$ 1,697 billion.

The total asset for the Federal Reserve Bank is \$ 4,463,981 million.The amount of mortgage-backed securities is \$ 1,722,434 million. Therefore, the percentage of the total assets in the form of mortgage-based securities is: - (\$ 1,722,434/\$ 4,463,981)*100% = 38.58516%=38.58% (approx)The amount of total liability of Federal Reserve is \$ 4,405,746 million and the amount of Federal Reserve notes of outstanding is \$ 1,502,469 million. Hence, the percentage of the Federal Reserve’s liabilities in the form of Federal Reserve notes is: - (\$ 1,502,469/\$ 4,405,746)*100%= 34.102488% = 34.10% (approx) (Federalreserve.gov, 2015)

## Political Reforms and Their Effect on Aggregate Demand and Supply

Marginal propensity to consume or MPC is the proportion of a change in aggregate consumption and total output level.

Here, ΔC=\$100 million and ΔY=\$250

Therefore, marginal propensity to consumption (MPC) of that economy is: - ΔC/ ΔY= \$100/\$250= 0.4

On the other hand, Marginal propensity to save or MPS is the proportion of a change in aggregate saving and total output level.

The marginal propensity to save (MPS) is: - 1-MPC= 1-(ΔC/ ΔY) = 1-0.4=0.6 (Bliss, Cheng & Denis, 2015)

• The government spending multiplier shows the effect of a change in government expenditure on goods and services.
• The government spending multiplier for the economy of Intrometida is: - 1/MPS=1/0.6=5/3= 1
• The tax multiplier shows the change in GDP in terms of change in taxes imposed by the government (Krugman, 2015).
• The tax multiplier for the economy of Intrometida is: - - (MPC/MPS) = - (0.4/0.6)= -2/3
• The balanced budget multiplier shows the multiplier effect of change in tax rate and government spending (Boyes, 2015).
• The balanced budget multiplier for the economy of Intrometida is:- (ΔY/ΔT) =
• tax multiplier)/ Government spending multiplier = [{1-(-2/3)}/ 1}] = (5/3)/ (5/3) =1
• From the government spending multiplier, the change in aggregate income for a given change in government spending can be calculated in the following way:-

The government spending multiplier for the economy of Intrometida is:-

(ΔY/ΔG)= 5/3

Or, ΔY = (3/5) ΔG

Or, (Y1-\$240) = (3/5)*\$30

Or, Y1-\$240 = \$18

Or, Y1=\$258

Hence, the new level of aggregate output (per year) is: - \$258 billion (Carlin & Soskice, 2015)

• From the tax multiplier, the change in aggregate income for a given change in tax can be calculated in the following way:-

(ΔY/ΔT)= - 2/3

Or, ΔY = - (2/3) ΔT

Or, - (2/3) ΔT = Y2 - Y1

Or, - (2/3) ΔT = \$240 - \$258 = -\$18

Or, ΔT = (- \$18)*(-2/3) = \$ 12

Therefore, value of tax cut required \$ 12 billion (Hubbard & O'Brien, 2015).

Few years ago, the investors of U.S.A. had good money in their hand to invest. Then for safest investment they went to the Federal Reserve to buy the treasury bills. But Federal Reserve not agreed with them. In September, 2011, with the wake up of Bust.com, Federal Reserve’s chairman Alan Green span introduced a lower interest rate of 1% to keep the economy strong. Since, this 1% interest rate is a very low return on investment; the investors did not want to invest any more in banking sector. But, on the other side, the banks of Wall-street can also borrow money at this lowest rate of interest. With this the general surpluses from Japan, China and middle-east, which act as a bundle of cheap credit made borrowing of money easier for the banks of Wall-street. As a result, the banks started to enjoy a high leverage which helps to expand the outcome of a deal in a multiplier process. This created a huge amount of money for the banks and the banks of Wall-street became richer than any other big investors of the market. From this excess money the Federal Reserve made more money with the investment in household sectors by providing the loans to the home-owners through mortgages. That is why the Federal Reserve acts to lower the federal-fund rate and keep it low.During the housing bubble, when the investors wanted more home-owners to invest, at that time there was hardly any homeowner in the market as at that time, almost everyone had their own house. But, still the mortgage brokers were not much worried about whether or not a borrower of housing loan has a sufficient income (or, inclination) to repay a mortgage loan as they had introduced another idea for making the profit from mortgages. As in the case of home-loans, the house act as mortgage and the price of house grow over the period, the default payment of loans can be easily compensated by the value of the mortgaged house. Not only that, the banks then went for the more risks with the income earning from the selling of mortgaged houses. From this income the banks provided home-loans to the less-responsible home-owners in the exchange of sub-prime mortgages. With the passes of time, if these home-owners were default on their mortgages, then the investors became gainer from that as the default in paying the loan for one month by a home-owner, turned into a house which was more profitable for the investors ('The Financial Crisis of 2008, Credit Markets and Effects on Developed and Emerging Economies', 2010).The global pool of money in early 2008 was \$ 70 trillion.

## Kris' Marginal Tax Rate Calculation

By mortgage-backed security or MBS we generally mean a type of security backed by the mortgage and which is more commonly treated as a collection of many mortgages.

There were numerous source of data analyzed the mortgage foreclosure rates. But the problems associated with this data analysis was, none of those data source provided full or complete current data . Moreover to predict the future areas of concentrated foreclosures based on the specific aim and interest, different data source used different process, conflicting each other.The commercial paper market means the market for commercial paper which acts as an unsecured promissory note. It has a fixed maturity for maximum 270 days.

The value of outstanding credit default swaps on corporate bonds in 2008 is \$ 54 trillion.

A stock-injection plan perceived as possibly preferable to the original Paulson plan of purchasing a bank’s toxic assets because, buying of toxic assets in their true value will help to overcome the insolvency of the banks. That is for this stock-injection, bank equity will rise through solving the leverage problem which will help to overcome the crisis (This American Life, 2015).By a bank to mark its assets to market means a measurement of the fair value of account. Like assets and liabilities it can be charged over time to provide a realistic valuation of a bank’s current financial status.

Insolvent banks are the banks which owe more assets than the banks actually own. On the other hand, liquidity banks are the banks which don’t have the enough resource to meet their current needs. That is in both the cases there is an imbalance between the assets and liabilities of the banks.

According to Joe Lavorgna , the chief economist of Deutsche Bank, the main problem related to the purchasing of trouble assets is pricing policy, particularly, the government pricing has been set in a way which is unable to put the tax-payers on the hook. This is not a standard efficient plan as there will still be a decline in the economy which will lead to a higher rate of unemployment and a large fall in tax base. Due to this decline in tax base, government revenue will fall and as a result there will be a shortage of essential services supplied by the government. As a result, the tax payers will have to pay tax in one way or another. That is either through the diminishing job prospects or through funding the current fiscal spending initiatives where the higher taxes lead to fall in the line to pay for the huge debt issuance (This American Life, 2015).

References

Arnold, R. (2015). Macroeconomics. [Place of publication not identified]: Cengage Learning.

Bliss, B., Cheng, Y., & Denis, D. (2015). Corporate payout, cash retention, and the supply of credit: Evidence from the 2008–2009 credit crisis. Journal Of Financial Economics, 115(3), 521-540. doi:10.1016/j.jfineco.2014.10.013

Boyes, W. (2015). Macroeconomics. [Place of publication not identified]: Cengage Learning.

Carlin, W., & Soskice, D. (2015). Macroeconomics. Oxford: Oxford University Press.

Federalreserve.gov,. (2015). FRB: Invalid URL. Retrieved 30 May 2015, from https://www.federalreserve.gov/econresdata/releases/statisticsdata.htm

Hubbard, R., & O'Brien, A. (2015). Macroeconomics. Boston: Pearson.

Krugman, P. (2015). Macroeconomics. [S.l.]: Worth Pub.

Mankiw, N. (2015). Macroeconomics. [S.l.]: Worth Pub.

The Financial Crisis of 2008, Credit Markets and Effects on Developed and Emerging Economies. (2010).Journal Of Financial Stability, 6(2), 120. doi:10.1016/j.jfs.2010.02.004

The White House,. (2015). Historical Tables. Retrieved 30 May 2015, from https://www.whitehouse.gov/omb/budget/Historicals

This American Life,. (2015). Another Frightening Show About the Economy | This American Life. Retrieved 30 May 2015, from https://www.thisamericanlife.org/Radio_Episode.aspx?episode=365

This American Life,. (2015). The Giant Pool of Money | This American Life. Retrieved 30 May 2015, from https://www.thisamericanlife.org/Radio_Episode.aspx?episode=355

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