Question

In the 1980s, Arthur Laffer proposed that the economy was operating around which point?

a. A
b. B
c. C
d. D
e. E

Given the answer to first question, what discretionary fiscal policy tool did Arthur Laffer propose that the United States utilize to increase tax revenues?
a. decrease government spending
b. keep income tax rates at the current level
c. decrease income tax rates
d. increase government spending
e. increase income tax rates

Answer 1

E!! This is because I looked it up for you and heard what I got ;)

Answer 2

c. C

c. decrease income tax rates

Step-by-step explanation:

Arthur Laffer was a supply‑side economist who was interested in finding the optimal income tax rate that would maximize government tax revenues. This hypothetical tax rate would lead to the economy operating at point E. He is not known for his views on government spending, or demand‑side policies.

Laffer proposed that the U.S. economy in the 1980s was operating at an income tax rate that was too high, but it was not at 100%. Therefore, the answer to the first question is point C. Point C is above the optimal tax rate (point E), but lower than a 100% tax rate (point A).

Given where Laffer thought the economy was operating, he proposed that decreasing tax rates was the solution to increasing tax revenues. Therefore, the answer to the second question is to decrease income tax rates.