Discuss the meaning of the phrase of supply-side economics, discussing how it is similar and different from the traditional classical model. Make sure to discuss the role of the Laffer curve in supply-side theory
What will be an ideal response?
Classical economists did not pay much attention to the supply-side effects of changes in income tax rates because, at that time, the marginal income tax rate was very low and pertained only to the relatively wealthy. On the other hand, Supply-side economics focuses almost exclusively on the negative supply effects of changes in tax rates. The Laffer curve says that past a certain level, higher marginal tax rates create such a large disincentive to work and investment that production would begin to significantly fall. This leads to a fall in tax revenue as marginal tax rates rise.
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The Fed controls bank lending and thus the process of money creation through its power to
A) alter legal reserve requirements and the dollar amount of reserves. B) establish maximum and minimum interest rates on bank loans and deposits made with banks. C) oversee the lending criteria banks use. D) suspend the charter of banks whose lending activities contribute to an excessive rate of increase in the money supply.
In game theory, we usually assume that all players
A) act rationally. B) use the information available to them to decide on a best strategy. C) know about the payoffs of the other players. D) All of the above.