What are the tools of supply-side economic policy and how did the supply-siders think that these tools could be used to stimulate the economy?
Taxes, government regulation, and government spending are the three tools of supply-side economic
policy. Supply-siders believe that lower tax rates, less government regulation, and less government
spending would stimulate economic growth. As well, lower tax rates would provide stronger incentives to
work and produce, by increasing after-tax wages and profits. Less government regulation would reduce
production costs, spurring profits and production. They also believe that government spending crowds out
private sector investment by driving up the interest rate and by providing private investors with more
competition in the securities market.
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A bank has $200 of reserves and $4,000 of deposits. It is just meeting its desired reserves and has no excess reserves. Thus the desired reserve ratio is
A) 25 percent. B) 10 percent. C) 5 percent. D) $200. E) 20 percent.
Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if he wants to buy something with a price of $50, then it is a good offer, but if he wants to buy something with a price of $500, then it is not a good offer. This is an example of:
A. inconsistent reasoning because prices are sunk costs. B. inconsistent reasoning; saving $20 is saving $20. C. rational choice because saving 40 percent is better than saving 4 percent. D. the proper application of the Cost-Benefit Principle.