Author Question: If we include consideration of potential effects of a proposed tax reduction and simplification on ... (Read 32 times)

geoffrey · **on:** Jun 29, 2018

If we include consideration of potential effects of a proposed tax reduction and simplification on the labor supply, we would expect crowding out of investment and net exports brought about by the tax cut to be

A) increased as aggregate real income and output rise in the long run.
B) unaffected by the shifting long-run aggregate supply curve.
C) dependent upon the impact of this tax change on consumer disposable income.
D) less than it would be without the supply-side effects.

Question 2

What is meant by constant returns to scale?

What will be an ideal response?

ghepp · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

D

Answer to Question 2

Constant returns to scale implies that an increase in the firm's scale of production has no effect on average costs per unit produced.