A decrease in the marginal tax rate on asset income, _r, in the short run in the market clearing model:

Question

Quizplus · Accepted Answer

A decrease in the marginal tax rate on asset income does not change the incentives to save or invest, therefore it does not change the stock of capital in the short run. Since the production function and the technology are unchanged, real GDP is also unaltered. Finally, the market clearing rental price of capital is determined by the marginal product of capital and is not affected by the tax rate. Therefore, all of the above choices are correct.

A Decrease in the Marginal Tax Rate on Asset Income