Prompt: Read “YOU’RE THE ECONOMIST: The Laffer Curve” in Chapter 21. After reading the case, compare the common perception of how a tax rate cut affects tax revenues with economist Laffer's theory.

Q: In case of DEFLATION, mention that which particular type of fiscal policy will be used and why and…

A: Deflation occurs when the price level falls in the economy. It is usually when people prefer to hold…

Q: When an economy is already at full employment, what is the outcome of expansionary fiscal policies…

A: The fiscal policy is an automatic stabilizing policy in which the government either use it spending…

Q: In a closed economy, consumers spend $300 regardless of the level of income, and the marginal…

A: closed economy can be defined as one of that has no trading activity with outside economies its…

Q: Most economists have reached the following conclusion about supply-side economics. a. Supply-side…

A: The answer is - c. Supply-side tax cuts are likely to widen income inequality.

Q: According to the standard textbook Keynesian analysis, which is greater: the tax multiplier or the…

A: Spending multiplier measures the rate of change in national income arising from a change in…

Q: Consider an economy described by the following equations:   C = 300 + 0.90 (Y – T)…

A: Government spending multiplier = 1 / 1 - MPC Government spending multiplier = - MPC / 1 - MPC

Q: f the consumption function is C= 800 +0.6(Y-T), output, Y = $4,600 and net taxes, T, = $100, then…

A: here we calculate the consumption by using the consumption function so the calculation of the…

Q: Economist Arthur Laffer famously pointed out that, in some cases, income tax revenue can actually go…

A: As the tax rate goes down, expectation of tax aversion or tax avoidance likewise goes down. Each…

Q: For each of the separate scenarios, discuss the associated shortcoming of fiscal policy: After an…

A: In an economy, fiscal policy is the one that is developed and implemented by the government, but it…

Q: Suppose the economy has a recessionary gap. By using an expansionary fiscal policy, the Federal…

A: Government can able to control the fluctuation in an economy by using expansionary and…

Q: Suppose the tax multiplier in an economy is -3. How will total spending (TS) change when taxes (T)…

A: Since tax multiplier is -3, it means that if T decreases by $1, TS increases by $3. So, When T…

Q: Briefly discuss the effects of time lags in relation to fiscal policy, including: a comparison to…

A: ‘Fiscal policy’ refers to the use of ‘government revenue collection’ & expenditure to influence…

Q: If the marginal propensity to consume is equal to 0.8, and the government injects $50,000,000 of…

A: Given  MPC = 0.8 Government injected $50,000,000

Q: f the current real GDP is P700 billion, which of the following policies would bring the economy to…

A: MPC = 0.8 => Government spending multiplier = 1 / (1-MPC) => Government spending multiplier =…

Q: 1.Which of the following is an example of fiscal policy? Select an answer and submit. For keyboard…

A: Fiscal policy refers to the policy used by the government to stabize the economy.

Q: According to computer estimates using a traditional macroeconomic model, the Obama administration…

A: At the point when the Obama organization came into office, the American economy was one…

Q: Which of the following is NOT a fiscal policy action? Group of answer choices decreasing government…

A: Fiscal policy is used by governments that have an economic influence. Changes in taxation and…

Q: In each of the following cases, determine whether the policy is an expansionary or contractionary…

A: In the Keynesian macroeconomic theory, government plays a very important role in stabilizing the…

Q: Determine whether the ad or as curve with shift with each scenarios below. Each situation is…

A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: Refer to the above graph. Assume that the economy is in a recession with a price level of P2 and…

A: the aggregate demand is the total  number of goods and services svgjslly form crowd out.

Q: Use the aggregate expenditures model to show how government fiscal policy could eliminate either a…

A: Meaning of Aggregate Demand and Aggregate Supply: The term aggregate demand refers to the…

Q: Sir John Mayard Keynes said that the only time a should be balanced is when the economy is at full…

A: Full employment refers to an economy in which all available labour resources are used most…

Q: 36) An automatic fiscal stabiliser is      A) a monetary or fiscal policy that aims to smooth out…

A: The business cycle occurs when there is ups and downs in the gross domestic product along its trend…

Q: The tax multiplier is always more effective in stimulating the economy than government multiplier…

A: In Keynesian economics, it is assumed that changes in aggregate demand in the economy are able to…

Q: Suppose that a certain country has an MPC of 0.9 and an equilibrium real GDP of $500 billion. If…

A: The  Investment Multiplier proposes that the expansion in the Investments will prompt the income…

Q: Which is considered expansionary fiscal policy? a)a tax increase for wealthy individuals b)an…

A: Fiscal Policy is  the use of tax policy and the government expenditure that can influence the…

Q: Briefly discuss how time lag could be an argument against policy activism. What is the role of…

A: The government of a nation adopts various policies in order to bring stability in the economy. The…

Q: Suppose that an economy is in equilibrium at a level of output of $2000 million. Suppose further…

A: In an economy, a full employment level is one at which an economy can produce the potential level of…

Q: In a simple model without government spending or taxation, if C = a +bY where C is consumer spending…

A: The consumption function depicts the functional relationship between consumption and level of…

Q: Consider the Keynesian Cross model. If the fiscal multiplier equals 2, and the government decides to…

A: Fiscal multiplier =2 Increase government spending by 100

Q: Please answer the question below: If the current real GDP is P700 billion, which of the following…

A: MPC = 0.8 Potential output = P800 billion Real GDP = P700 billion

Q: In the 2009 stimulus package, Congress included tax cuts as well as changes in government spending.…

A: Several tax increases were debated as part of the debate about economic stimulus in the aftermath of…

Q: Use the following equations for exercises                                                     C = $…

A: C = $ 100 + .8 Y  I = $ 200  G = $ 250  X = $100 - .2 Y b=MPC = 0.8 GDP = C+ I + G + X GDP (Y)= 100…

Q: Use the aggerate demand and aggerate supply model to analyze the impact on the following scenarios…

A: AD and AS are aggregate demand and aggregate supply respectively which help to determine the price…

Q: Identify each scenario as an example of expansionary fiscal policy, contractionary fiscal policy, or…

A: In order to influence and manage the nation's economy, the government adjusts its spending and…

Q: Shift the aggregate demand curve on the graph to show the impact of a tax hike. 130 120 Aggregate…

A:

Q: The multiplier effect occurs when: Group of answer choices a. the planned spending in the economy…

A: The multiplier effect occurs when an initial change in autonomous spending led to a greater final…

Q: (Fiscal Policy) Chapter 11 shows that increased government purchases, with taxes held constant, can…

A:

Q: As part of the response to the Covid-19 virus, the Federal government passed a 2 Trillion-dollar…

A: As, the Federal government passes a 2 trillion bill, as a response for Covid-19 pandemic. It does…

Q: The Laffer curve demonstrates that:     policymakers will always reduce tax revenues by…

A: The Laffer Curve theory was developed by the economist Arthur Laffer and it shows the relationship…

Q: The economy is currently at a level of output that exceeds potential GDP (Yp).  List two fiscal…

A: Potential output is also called the natural GDP which says the maximum level of real GDP that an…

Q: Keynesian economists assert that a GDP gap = $6 trillion needs an increase in government spending of…

A: The GDP change is higher than the change in government spending because of the multiplier effect.

Q: Now consider an economy in which the government lowers its spending.  In the long run, the result…

A: An increase in government spending is an expansionary fiscal policy measure whereas a decrease in…

Laffer Curve Analysis

In terms of economics, the Laffer curve was popular among those economists who were or who belonged to the supply side of the economic peripheral.  This concept was popularized by the famous supply-side economist known as Arthur Laffer. This curve illustrated the relationship between the tax rates and government revenue. It is already known that the tax which the public or individuals residing in an economy bear is the revenue or income of the government with the help of which the government does all the necessary works in the society, which is beneficial for the economy.