10 32. Which of the following is a criticism of supply-side economics? A) That t
ID: 2441400 • Letter: 1
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10 32. Which of the following is a criticism of supply-side economics? A) That tax cuts will affect aggregate demand more than aggregate supply B) It is not yet proven that decreases in tax rates provide incentives to work, save and C) D) E) invest more. A decline in tax rates will give rise to large government budget deficits. Supply-side policies lead to greater inequalities of income and wealth. All the above. 33. According to supply-siders, what is one of the keys to curbing stagflation? An increase in the money supply and a cut in government spending A) B) A decrease in the money supply and an increase in government spending. C) D) E) An increase in aggregate demand Convincing people to buy domestic rather than foreign-produced goods A cut in tax rates Use the following to answer questions 34-35 AS, AS2 AD Real GDP 34. Refer to the graph above to answer this question, Which statement is true of the shift from AS2 to AS1? A) It could be caused by a tax cut. B) It illustrates stagflation. C) It would cause real GDP to rise. D) It illustrates economic growth. E) It could be a result of counter-cyclical monetary policy.Explanation / Answer
32) E) All of the above. Note that the reason why these policies are not used is their limited impact on aggregate supply. These policies barely increase working effort and productivity and instead work in a manner similar to demand side policies. Budget deficit is increased, a part of tax cut is saved, not necessarily workers will work more when income is increased, etc.
33) E) Tax cut can stimulate working hours and this increases labor supply. With lower wages production is increased and AS shifts right. Inflation is reduced and GDP is increased
34) B) From AS2 to AS1, AS is decreasing and shifting to the left. GDP is reduced and inflation is increased. This is showing stagflation.
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