During the Reagan administration, the Laffer curve was used to argue that:
A. the supply-side effects of tax cuts are relatively small.
B. discretionary tax cuts are unwise because they create stagflation.
C. lower income tax rates could increase tax revenues.
D. a "flat tax" would simplify the tax code and stimulate economic growth.
Answer: C
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A financial system is a means of bringing together savers and borrowers.
Indicate whether the statement is true or false.
If income were distributed equally our economic _________ would suffer.
Fill in the blank(s) with the appropriate word(s).
The aggregate demand curve:
a. shows the amount of real output that will be purchased at each possible price level. b. is downsloping because production costs decline as real output increases. c. shows the amount of expenditures required to induce the production of each possible level of real output. d. is upsloping because a higher price level is necessary to make production profitable as production costs rise.
Suppose there are two factories on a river, and both need clean water for their production processes. The upstream factory takes in clean water and dumps dirty water back into the river. The downstream firm must clean up the water it gets from the river before using it. In this situation
A. the internal costs of the upstream factory are externalized by the downstream factory, which then passes them on to its customers. B. the social costs are greater than the private costs for the upstream firm, while the social costs are less than the private costs for the downstream firm. C. the private costs of the downstream factory are more than the private costs of the upstream factory, but for both factories private costs and social costs are the same. D. the upstream factory's private costs are less than its social costs, and its external costs are borne by the downstream factory.