Discuss the meaning of the phrase of supply-side economics, ...

[saraeharris]

Discuss the meaning of the phrase of supply-side economics, discussing how it is similar and different from the traditional classical model. Make sure to discuss the role of the Laffer curve in supply-side theory.
 
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Question 2

In general, in the 19th century, America
 
  (a) was a low tariff nation because it was believed that free trade brought specialization, efficiency and more rapid economic growth.
  (b) was a nation that kept its tariffs at about the same levels as England so as not to give the British an advantage.
  (c) was a high tariff nation which believed, from the days of Alexander Hamilton, that America's industry needed protection from the more industrially advanced England.
  (d) had a moderate level of tariffs, compared with England, whose main purpose was to provide the federal government with revenues.

[heinisk01]

Answer to Question 1

Classical economists did not pay much attention to the supply-side effects of changes in income tax rates because, at that time, the marginal income tax rate was very low and pertained only to the relatively wealthy. On the other hand, Supply-side economics focuses almost exclusively on the negative supply effects of changes in tax rates. The Laffer curve says that past a certain level, higher marginal tax rates create such a large disincentive to work and investment that production would begin to significantly fall. This leads to a fall in tax revenue as marginal tax rates rise.

Answer to Question 2

(d)

[saraeharris]

Thank you

[heinisk01]

Happy to help you