Critical assumptions behind the Laffer curve include
a. labor supply is inelastic.
b. investment is very responsive to higher savings and lower interest rates.
c. the economy is above the marginal tax rate that maximizes tax revenue.
d. both b and c.
e. all of the above.
Question 2
According to the monetarist theory, an increase in government spending would have
a. only weak effects on both output and the price level.
b. a weak effect on output with a strong effect on the price level.
c. a weak effect on the price level but a strong output effect.
d. stronger effects on output if financed with increases in the money supply.
e. both a and d.
Critical thinking and implementing care
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