Explain why proponents of supply-side effects of tax rate variations who also believe that tax-rate changes influence aggregate demand might claim that cuts in marginal income tax rates can potentially push up real Gross Domestic Product (GDP)
without generating inflation.
According to supply-side economics, a reduction in marginal income tax rates causes the aggregate supply curve to shift rightward. If such tax-rate reductions also cause total planned expenditures to rise and generate an equal-sized rightward shift of the aggregate demand curve, then equilibrium real Gross Domestic Product (GDP) rises, but the equilibrium price level remains the same.
You might also like to view...
In the circular flow model, which of the following is on the buying side in the goods market?
i. firms ii. households iii. federal, state, and local governments A) i only B) ii only C) iii only D) i and ii E) ii and iii
In contrast to a monopoly which misallocates resources by restricting output and producing too little, government bureaus misallocate resources by _____
a. producing too little b. producing too much c. producing the right amount but charging nothing for the output d. producing zero
A characteristic that is important, but not essential to defining a perfectly competitive market is:
A. goods are standardized. B. buyers and sellers are price takers. C. firms can freely enter and exit the market. D. All of these are necessary to define a perfectly competitive market.
In Adam Smith's competitive market economy, the question of what goods to produce is determined by:
a. the "invisible hand" of the price system. b. businesses. c. unions. d. the government, through laws and regulations.