Consumer maximising equilibrium and perfectly competitive firm equilibrium. The reason society may wish to preserve monopolies is because of economies of scale. Monopoly profit can be taxed and monopoly loss subsidised. Maximum 5 marks Essay Solution 2 This year the economy is at full employment. Normally each year the capital stock grows because of net investment and the labour force grows in both numbers and levels of education, skill and training.
Technological change is introduced into the capital stock primarily through new investments.
Thus since MP was used C will be lower than it would have been under the tax cut. Maximum 8 marks Exchange rate MP will produce a lower R will attract a smaller capital inflow or cause a capital outflow. Since the QY relationship would be the same under both policies there is no reason to believe the inflation rate will change. The impact on C is unclear. While a tax cut would have caused an increase in C, the lower interest rate also will affect positively some consumer expenditures especially housing and durables.