Question 1
The Economic Recovery Tax Act of 1981 allowed firms to depreciate their capital at a very rapid rate for tax purposes. This
◦ increased the tax liability of firms and discouraged them from investing.
◦ decreased tax liability and encouraged investment.
◦ increased the tax liability of firms and encouraged them to invest.
◦ decreased tax liability and discouraged investment.
Question 2
The implicit assumption behind the Economic Recovery Tax Act of 1981, which cut the individual income tax rate by 25% over three years, was that
◦ the economy was on the negatively sloped portion of the Laffer curve.
◦ the economy was on the positively sloped portion of the Laffer curve.
◦ tax rate reductions will stimulate demand in the economy and move the economy to full employment.
◦ tax rate reductions will decrease supply in the economy and therefore choke off the high rate of inflation that the economy was experiencing.
Individual Tubule Functions
Relationship between Economic Openness and GDP per Capita
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