According to the Laffer curve,
a. an increase in tax rates will always cause tax revenues to increase.
b. when marginal tax rates are high, an increase in tax rates is likely to cause tax revenues to increase.
c. when marginal taxes are low, an increase in tax rates will probably cause tax revenues to decline.
d. when marginal tax rates are high, a reduction in tax rates may increase tax revenue.
Answer: d. When marginal tax rates are high, a reduction in tax rates may increase tax revenue.
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Which of the following does not describe a characteristic of short-term economic fluctuations?
A. Expansions and recessions are irregular in length and severity. B. Durable-goods industries are less sensitive to short-term fluctuations than service and non-durable industries. C. Expansions and recessions are felt throughout the economy. D. The unemployment rate rises during recessions.
In answer to the question, "Could they see the Great Depression coming?", Hughes and Cain (2011) respond:
(a) No—Many people firmly believed that markets would self-correct and eventually recover with no government intervention (b) No—many people seemed to believe that the prosperity of the 1920s would continue indefinitely because they believed that the economy was built to sustain high and stable rates of growth with minimal cyclical fluctuation when markets were permitted to clear themselves without government interference. (c) Yes—in the late 1920s, a majority of economists reported and publicized that the economy was becoming dangerously unbalanced and that a serious downturn was near. (d) Yes and no—by the late 1920s, the economics profession was about equally split on the possibility of a serious downturn in the near future.
If an individual wins a multimillion dollar lottery and chooses to receive annual payments equaling the total prize, this person has a
A) relatively low discount rate. B) relatively high discount rate. C) discount rate of zero. D) It is impossible to tell.
The market system is also called the price system because
A) rising prices are the signal to producers to offer more of a particular good. B) people pay money in markets. C) everything has a price tag. D) inflation is a significant problem.