1. Supply-side economics is the belief that tax cuts can be used to stimulate lo

Question

1. Supply-side economics is the belief that tax cuts can be used to stimulate long-run economic growth. T/F

2. Which of the following is FALSE? At the time of the Great Depression

a. the measurement of the business cycle was well advanced.

b. economists recognized that the economy did not always grow smoothly.

c. the U.S. economy was substantially agricultural.

d. there was no widely accepted theory of the causes of depressions.

3. The claim that reducing deficits in an economy with high rates of unemployment will help even in the short run by improving confidence is called:.

a. quantitative easing

b. fiscal stimulus

c. expansionary austerity

d. a credit crunch

4. Economists today generally believe that fiscal policy should be the primary tool for stabilizing the economy. T/F

5. Economists today generally believe that fiscal policy should be the primary tool for stabilizing the economy. T/F

6.The natural rate hypothesis:

a. implies that there is no liquidity trap.

b. is now generally discredited.

c. implies sharp limits on what macroeconomic policy can achieve.

d. implies there is a long-run trade-off between inflation and unemployment.

Explanation / Answer

1. True. Supply-side economics holds that increased taxation steadily reduces economic activity within a nation and discourages investment, and vice versa. The idea is illustrated by the Laffer curve.

2. (c) At the time of the Great Depression, the U.S. economy was substantially agricultural. This is a false statement.

3. (c) The claim that reducing deficits in an economy with high rates of unemployment will help even in the short run by improving confidence is called expansionary austerity or expansionary foscal contraction.

4. and 5. False.

6. (c) The natural rate hypothesis implies sharp limits on what macroeconomic policy can achieve.

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