Question

Suppose that Jacques, an economist from a research institute in Texas, and Kyoko, an economist from a university in Massachusetts, are arguing over saving incentives. The following dialogue shows an excerpt from their debate:

Kyoko: I think it’s safe to say that, in general, the savings rate of households in today’s economy is much lower than it really needs to be to sustain an improvement in living standards.

Jacques: I think a switch from the income tax to a consumption tax would bring growth in living standards.

Kyoko: You really think households would change their saving behavior enough in response to this to make a difference? Because I don’t.

1. The disagreement between these economists is most likely due to (differences in scientific judgement, differences between perception versus reality, differences in values???)

2.Despite their differences, with which proposition are two economists chosen at random most likely to agree?

A. Employers should not be restricted from outsourcing work to foreign nations.

B. Business managers can raise profit more easily by reducing costs than by raising revenue.

C. Central banks should focus more on maintaining low unemployment than on maintaining low inflation.

Answer 1

1) In this case the disagreement between Jacques and Kyoko represents a disagreement in values as fundamentally,both the economists differ in the policy that would potentially mitigate the problem of alarmingly lower savings rate in the economy.

2) If business managers achieve lower production costs or economies of scale then the overall production level or supply can be restricted and profit can be increases simultaneously considering the sales revenue as constant.This will restrict any excess production in the economy as well as raise business profits at the same time.Thus,both Jacques and Kyoko would probably agree on this point.

Hence,the correct answer is option-B or Business managers can raise profit more easily by reducing costs than by raising revenue.