Question

Question 51 pts

The money supply is growing at 4% per year. All other things equal, Friedman says this will result in:

a rise in production and employment of 4% per year in both the short and long run.

an inflation rate of approximately 1% in the long run.

a rise in production and employment of 1% per year in the long run.

an inflation rate of approximately 4% in the short run.

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Question 61 pts

According to the Laffer curve tax cuts reduce tax revenue when tax rates are NOT prohibitive.

True

False

Answer 1

Ans 1. The money supply is growing at 4% per year. All other things equal, Friedman says this will result in:

an inflation rate of approximately 4% in the short run as the opportunity cost of holding money should equal the social cost of creating additional fiat money.

Ans 2 According to the Laffer curve tax cuts reduce tax revenue when tax rates are NOT prohibitive.

The Laffer Curve is a theory that states lower tax rates boost economic growth.

The Laffer Curve describes how changes in tax rates affect government revenues in two ways.Every dollar in tax cuts translates directly to one less dollar in government revenue.

Hence the statement

According to the Laffer curve tax cuts reduce tax revenue when tax rates are NOT prohibitive. is True.