What are the major criticisms of the Laffer Curve and supply-side economics?
What will be an ideal response?
First, a fundamental criticism relates to the question of economic incentives and whether they are affected much by existing tax rate changes. The skeptics contend that tax cuts have minimal effects on short-run incentives to work, save, and invest. These tax cuts do not appear to increase productivity. Second, most economists believe that the demand-side effects of tax-transfer policies outweigh any offsetting supply-side effects. If the tax cuts increase aggregate demand more than aggregate supply, inflation is likely to result. Third, it is difficult to determine the optimal level of taxation. If the tax rate for the economy is below the optimal tax rate, a tax cut can reduce tax revenues rather than raise them.
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When firms participate in group health insurance for all employees, it
A) raises rates for everyone, because it brings unhealthy people into the pool. B) raises rates for unhealthy people. C) may lower rates for all people to the extent that it keeps healthy people in the pool. D) prevents unhealthy people from "selecting out," to the detriment of healthy people. E) increases the amount of information available to insurers about the population.
When the economy is in a recessionary gap, the labor market is experiencing a _____________. In a self-regulating economy, wage rates will then ___________ and the ______________ curve will shift __________________
A) shortage; rise; AD; rightward B) shortage; fall; SRAS; leftward C) surplus; rise; AD; rightward D) shortage; fall; SRAS; rightward E) surplus; fall; SRAS; rightward
Farm subsidies
A. enable industrial nations to export much of their agricultural output at artificially low prices. B. in the world's richest nations amount to over $300 billion. C. make it more difficult for less developed nations to purchase capital equipment from U.S. manufacturers such as Caterpillar. D. All of the choices are true.
If we observe a decrease in the price of a good and an increase in the amount of the good bought and sold, this could be explained by
a. a decrease in the supply of the good. b. a decrease in the demand for the good. c. an increase in the demand for the good. d. an increase in the supply of the good.