Supply-side economics concentrates on the benefits of reducing marginal tax rates. Describe three ways that high marginal tax rates are likely to retard output growth
The most direct way that high tax rates retard output is that they simply discourage work. Individuals who get to keep little of what they make are not motivated to produce. High marginal rates also reduce capital formation as both domestic and foreign investors seek lower taxed investments abroad. Finally, high rates create inefficiencies because individuals do not bear the full costs of tax-deductible purchases. People will substitute less-desired but tax-deductible goods for more-desired, nondeductible goods. Resources are, thus, used to produce goods that may not be valued as much as the cost of producing them.
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Suppose the price of a can was $5.14. In this case, to maximize its profit, the firm illustrated in the figure above would
A) increase its production and would make an economic profit. B) not change its production and would make a normal profit. C) not change its production and would make an economic profit. D) increase its production and would incur an economic loss. E) not change its production and would incur an economic loss.
To increase the money supply, the Fed might: a. increase the reserve requirement and the discount rate
b. decrease the reserve requirement and the discount rate. c. increase the reserve requirement and decrease the discount rate. d. sell government securities and increase the discount rate. e. sell bonds on the open market and increase the reserve requirement.