President Bush lowered taxes on capital gains and dividends in 2003. Explain how this might increase aggregate supply
What will be an ideal response?
A lender earns a capital gain if she purchases an asset such as a stock at a particular price and then sells it later at a higher price. This difference in price is the capital gain, and is subject to taxes. If capital gain taxes are lowered, the after-tax rate of return on stocks will rise.
Dividends are corporate profits that get redistributed to stock shareholders. These are taxed, and the lower the tax, the greater the after-tax rate of return to investing in a stock that pays a dividend.
Increasing this after-tax rate of return will increase the household's willingness to save and raise the supply of loanable funds. This will lower the interest rate and encourage firms to purchase new capital. This increases the capital stock and aggregate supply.
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An increase in the interest rate will: a. increase the amount of money supplied by lenders
b. decrease the amount of money supplied by lenders. c. have no effect on the amount of money supplied by lenders. d. have an ambiguous effect on the amount of money supplied by lenders.
Output per employed worker is called:
A. output per person. B. average labor productivity. C. average standard of living. D. total output.
In a study of college yearbook photos, researchers found that:
a. An inauthentic smile by males meant they would be unhappy in life b. Women with the Pan Am (fake) smile were just as happy in life as women with the Duchene (genuine) smile c. Smiling type makes no difference d. A genuinely smiling woman (with the Duchene smile) is more likely to be married, stay married, and to experience more personal well-being than a woman with the fake smile.
Which of the following most accurately describes the aggregate supply curve?
a. It shows the price level associated with firms' unit costs and markups for any level of GDP. b. It is the sum of all individual firms' supply curves. c. It is determined by the federal government. d. It shows firms' unit costs for each level of GDP. e. It shows the equilibrium level of GDP corresponding to each price level.