How did Arthur Laffer use Robin Hood and Sherwood Forest to explain the advantage of supply-side economics?
What will be an ideal response?
Laffer considered people passing through Sherwood Forest as taxpayers from which Robin Hood collected taxes. The tax rate in this case was almost 100% because travelers had all their money confiscated when they passed through the forest. The reaction to this situation would be to avoid the forest. In this case, there would be less revenue for Robin Hood. Laffer suggested that people, when confronted with high taxes, would change their behavior by working less, saving less, retiring early, and doing other things to avoid taxes. The tax collection policy would result in less revenue for government rather than more.
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Long-run equilibrium for firms in monopolistically competitive industries is similar to that for firms in perfect competition in that:
A. price equals marginal cost. B. marginal revenue equals price. C. price equals average total cost. D. price equals minimum possible average total cost.
If the Fed wishes to reduce the money supply, it can do all of the following except
A. Raise the discount rate. B. Sell securities on the open market. C. Buy shares of common stock in a large bank. D. Raise the minimum reserve ratio.
The induced retirement effect
A. causes a decrease in savings because people retire earlier. B. causes a decrease in savings because people retire later. C. causes an increase in savings because people retire later. D. causes an increase in savings because people retire earlier.
New classical economists like Robert Lucas argue that the Great Depression was primarily caused by
a. lots of mistaken expectations about the future. b. significant falls in investment. c. significant falls in the money supply. d. significant increases in taxes. e. all of the above.