Question

q13. Reducing tax rates encourages ________ according to supply side economists.

• businesses to increase investment spending
• people to enjoy more time off
• consumers to spend less

q14. An example of a progressive tax would be

• an income tax with a 10% tax rate on low income households and 20-30% tax rates on higher income households.
• a Social Security tax rate of 5% on earned income below $100,000 and 0% on income earned above $100,000.
• the Medicare payroll tax of 2.9% of income for everyone, regardless of how much they earn.

q15. An argument to promote education is that it will

• create jobs for teachers
• increase labor productivity and economic growth in the long run
• increase capital accumulation or deepening in the economy

Answer 1

Supply-side fiscal policy can be defined that policy whose aim is to improve economic growth and create jobs is by increasing the production of goods and services. This is also known as the trickle-down effect. In this taxes are lowered and government removes barriers to investment.

It means supply side economics focus on the increase in the production of goods and services.

· Hence it can be said that reducing tax rates encourages businesses to increase investment spending according to supply side economists. This is because with the decrease in the tax rate, it is profitable for the firm to produce more because profitability will increase due to reduction in the tax rate.

Hence option first is the correct answer.

14.

Progressive income tax can be defined as a taxation system in which average tax rate increases with the increase in the income.

Regressive income tax can be defined as a taxation system in which average tax rate decreases with the increase in the income.

· Hence it can be said that an example of a progressive tax would be an income tax with a 10% tax rate on low income households and 20-30% tax rates on higher income households.

This is because burden of tax is lower on poor and higher on the rich.

Hence option first is the correct answer.

15.

Human capital is a skilled and trained labor which he acquires through education and training.

It means that when education level increase, it leads production of human capital which leads to economic growth.

The physical capital are those manufactured output or made resources which are used for the production of any goods and services.

Hence it can be said that an argument to promote education is that it will

increase labor productivity and economic growth in the long run.

Hence option second is the correct answer.