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Question: Suppose the price elasticity of machinery exports in international markets is 2/3, and the dollar is overvalued by 30%, so those exports drop 20%. Also assume that this reduces manufacturing employment by 500,000 workers, and all of them become unemployed. As an alternative, the US government decides to reinstate the investment tax credit of 10% for all machinery produced by domestic producers, and the cost of that tax credit is $20 billion per year. What effect would that tax credit have on the value of the dollar?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M93115072

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