Question : 18.3   Supply-Side Economics 1) According to supply-side economics, the government needs : 1381257

18.3   Supply-Side Economics

1) According to supply-side economics, the government needs to focus on policies to

A) stimulate demand.

B) decrease demand.

C) stimulate supply.

D) decrease supply.

2) Which of the following would be considered a supply-side policy?

A) an increase in the minimum wage that would cause consumer spending to increase

B) an increase in government spending that would lead to increased aggregate demand

C) investment tax credits for businesses to encourage investment

D) a decrease in the growth of the money supply

3) The curve that assumes that there is some tax rate beyond which the supply response is large enough to lead to a decrease in tax revenue for further increases in the tax rate is the

A) aggregate supply curve.

B) Lucas supply curve.

C) aggregate production function.

D) Laffer curve.

4) If tax rates are cut so that people have an increased incentive to work and businesses have an increased incentive to invest,

A) aggregate supply will increase, aggregate output will increase, and the price level will increase.

B) aggregate supply will increase, aggregate output will increase, and the price level will decrease.

C) both aggregate supply and demand will increase, aggregate output will increase, and the price level will increase.

D) aggregate supply will increase, aggregate demand will decrease, aggregate output will increase, and the price level will decrease.

5) According to supply-side economists, as tax rates are reduced, labor supply should increase. This implies that

A) the income effect of a wage change is greater than the substitution effect of a wage change.

B) the substitution effect of a wage change is greater than the income effect of a wage change.

C) there is no income effect when tax rates are changed.

D) there is no substitution effect when tax rates are changed.

Refer to the information provided in Figure 18.3 below to answer the questions that follow.

Figure 18.3

6) Refer to Figure 18.3. A cut in tax rates will decrease tax revenue if the economy moves from Point

A) A to B.

B) B to A.

C) C to B.

D) A to D.

7) Refer to Figure 18.3. A decrease in tax rates will definitely decrease tax revenue if the economy is at a point such as ________ on the Laffer Curve.

A) A

B) B

C) C

D) both A and B

8) Refer to Figure 18.3. The tax rate that will maximize tax revenue is associated with point

A) A.

B) B.

C) C.

D) D.

9) Refer to Figure 18.3. At point B

A) an increase in tax rates will increase tax revenue.

B) a decrease in tax rates will increase tax revenue.

C) any change in tax rates will decrease tax revenue.

D) any change in tax revenue will increase tax revenue.

10) According to the Laffer curve, if the economy is on the positively sloped section of the curve, then

A) both an increase and a decrease in tax rates will increase tax revenue.

B) a decrease in the tax rate will increase tax revenue.

C) an increase in the tax rate will increase tax revenue.

D) both an increase and a decrease in tax rates will decrease tax revenues.