MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
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Question
Chapter 11, Problem 15SQ
To determine
The reason for the shift of
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Students have asked these similar questions
Average Tax Rate
Tax Revenue ($B)
20%
$250
40
300
60
250
80
200
Refer to the table. If the current tax rate is 60 percent, supply-side economists would advocate
Multiple Choice
lowering tax rates to 20 percent, or lower if possible.
lowering tax rates to 40 percent.
keeping tax rates at 60 percent.
raising tax rates to 80 percent.
Compare the impact of a recession that reduces consumer income by 10 percent on the consumption of durable goods and house rentals. Suppose that the income elasticity of demand for durable goods is 1.5 and the income elasticity of demand for house rentals is 0.3. Based on your response, make a policy argument to support through government funding either businesses or house rentals.
K
During the 1980s, the controversial economist
Arthur Laffer promoted the idea that tax
increases lead to a reduction in government
revenue. Called supply-side economics, the
theory uses functions such as
f(x) = -
-, 30 ≤x≤ 100. This function
models the government tax revenue, f(x), in tens
of billions of dollars, in terms of the tax rate, x.
The graph of the function is shown. It illustrates
tax revenue decreasing quite dramatically as the
tax rate increases. At a tax ate of (gasp) 100%,
the government takes all our money and no one
has an incentive to work. With no income earned,
zero dollars in tax revenue is generated.
Complete parts (a) through (c) below.
110x-11,000
x-140
a. Find f(30).
f(30) = (Round to the nearest integer as needed.)
Tax Revenue
80-
40-
0-
0
50
Tax Rate
100
Chapter 11 Solutions
MACROECONOMICS FOR TODAY
Ch. 11.3 - Prob. 1YTECh. 11 - Prob. 1SQPCh. 11 - Prob. 2SQPCh. 11 - Prob. 3SQPCh. 11 - Prob. 4SQPCh. 11 - Prob. 5SQPCh. 11 - Prob. 6SQPCh. 11 - Prob. 7SQPCh. 11 - Prob. 8SQPCh. 11 - Prob. 9SQP
Ch. 11 - Prob. 10SQPCh. 11 - Prob. 11SQPCh. 11 - Prob. 1SQCh. 11 - Prob. 2SQCh. 11 - Prob. 3SQCh. 11 - Prob. 4SQCh. 11 - Prob. 5SQCh. 11 - Prob. 6SQCh. 11 - Prob. 7SQCh. 11 - Prob. 8SQCh. 11 - Prob. 9SQCh. 11 - Prob. 10SQCh. 11 - Prob. 11SQCh. 11 - Prob. 12SQCh. 11 - Prob. 13SQCh. 11 - Prob. 14SQCh. 11 - Prob. 15SQCh. 11 - Prob. 16SQCh. 11 - Prob. 17SQCh. 11 - Prob. 18SQCh. 11 - Prob. 19SQCh. 11 - Prob. 20SQ
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- whenever the government wants to increase revenues it usually trend to increase taxes on goods that have inelastic demand than elastic demand.Why, explain using examplesarrow_forwardconsumers increased consumption by a relatively small amount in 2008 and 2009 because thet believe the tax cuts temporary. true or falsearrow_forwardIdentify the effect of increase in tax rates on either demand or supply curve and the equilibruim interst rates.arrow_forward
- P Tax Rate (%) B C Tax Revenue ($) Refer to the graph. Critics of supply-side economics would argue that tax rates are currently between Ob and d and that a decrease in tax rates will increase tax revenues. 0 and b and that a decrease in tax rates will increase tax revenues. 0 and b and that a decrease in tax rates will decrease tax revenues. Ob and d and that a decrease in tax rates will decrease tax revenues.arrow_forwardMost economists have reached the following conclusion about supply-side economics. a. Supply-side tax cuts are likely to reduce income inequality. b. Supply-side tax cuts are almost certain to lead to smaller budget deficits. c. Supply-side tax cuts are likely to widen income inequality. d. None of these.arrow_forwardThe supply-side effects show that a tax cut on labor income ________ the supply of labor and ________ employment. decreases; increases increases; increases increases; does not change increases; decreases decreases; decreases The supply-side effects of an income tax cut ________ potential GDP and ________ aggregate supply. increase; decrease decrease; decrease decrease; increase increases; do not change increase; increase Which of the following is a monetary policy goal? i. keeping the inflation rate low ii. attaining maximum employment iii. keeping the long-term interest rate at a moderate level ii only i, ii, and iii i only iii only i and iii When real GDP is greater than potential GDP, there is ________ which leads the inflation rate to ________. Group of answer choices an inflationary gap; fall a recessionary gap; rise a recessionary gap; fall a recessionary gap; remain stable an inflationary gap; rise Which…arrow_forward
- - Most economists have reached the following conclusion about supply-side economics. Supply-side tax cuts are likely to reduce income inequality. Supply-side tax cuts are almost certain to lead to smaller budget deficits. Supply-side tax cuts are likely to widen income inequality. None of these.arrow_forwardWhich of the following statements is correct? A decrease in the size of a tax always decreases the tax revenue raised by that tax. A decrease in the size of a tax always decreases the deadweight loss of that tax. Tax revenue decreases when there is a small decrease in the tax rate and the economy is on the downward-sloping part of the Laffer curve. An increase in the size of a tax leads to an increase in the deadweight loss of the tax only if the economy is on the upward-sloping part of the Laffer curve.arrow_forwardPlease write down whether the following statements are true or false, and explain your answer very briefly. If prices are constant economic incidence would be the more than legislative (statutory) incidence. Regarding incidence analysis, if we examine distributional changes which result if one tax is substituted for another while holding total expenditure and tax revenue as constant, then we use budget incidence. If the individual works more after the tax on labour, that means substitution effect outweighs the income effect. Supply side economists are for increasing the tax rates. As a result of increase in the tax rate, both excess burden and taxrevenue increase. 4 A progressive tax system encourages individuals to work harder. The more elastic is demand is relative to supply, the greater the portion of burden is borne by consumers.arrow_forward
- Discretionary spending is spending that must appropriated by Congress each fiscal year. Mandatory spending is spending that does not require congressional or presidential action once the programs are established. For each item, indicate whether it is an example of discretionary or mandatory spending. Discretionary Defense spending Spending on national parks Funding of the FBI Mandatory Social Security Medicare Oarrow_forwardTax Burden Consider a market with a vertical demand curve. If the government imposes taxes on this market, the tax burden: Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a Will be split evenly between buyers and sellers. b Will be split unevenly between buyers and sellers. Will fall entirely on buyers. d Will fall entirely on sellers.arrow_forwardRuritania's economy is depicted below, with the long run aggregate supply curve (LRAS), three short run aggregate supply curves (AS1, AS2, and AS3) and three aggregate demand curves (AD1, AD2, and AD3). Right now, Ruritania is at point A, with real GDP of 7 trillion krone and a price level of 100. Answer the questions based on the information in the graph. A shift to which curve would result in a short run equilibrium of 5 trillion krone and a lower price level? AS1 AD1 AS3 AD3 Price level 200 180 160 140 120 100 80 60 40 20 0 1 2 3 LRAS 5 6 7 A AS3 AS2 AD2 AS1 AD3 AD1 8 9 10 11 12 13 14 Real GDP (trillion krone)arrow_forward
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