During a year of operation, a firm collects $450,000 in revenue and spends $100,000 on labor expense

During a year of operation, a firm collects $450,000 in revenue and spends $100,000 on labor expense, raw materials, rent and utilities.  The firm’s owner has provided $750,000 of her own money instead of investing the money and earning a 10 percent annual rate of return.

Question: Higher personal taxes in the U.S. will affect personal disposable income which in turn will affect the domestic demand for goods and services. Costs of production and inputs however continue declining. What do you expect the U.S. output and prices in the near future. Assume we are moving from the old equilibrium to a new equilibrium. Please state clearly your assumptions and include a graph to support your answer.

 

 

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