Tax Rate Tax Base Tax Revenue 20% $8 Trillion $1.6 Trillion 30% $7 Trillion $2.1

Question

Tax Rate

Tax Base

Tax Revenue

20%

$8 Trillion

$1.6 Trillion

30%

$7 Trillion

$2.1 Trillion

40%

$5.5 Trillion

$2.2 Trillion

50%

$4 Trillion

$2.0 Trillion

Fill in the missing information and identify each of the three intervals as having prohibitive or non-prohibitive taxes. 35 points

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3. Answer True or False for each of the following.   3 points each

Rational Expectations believes that markets accurately incorporate all known info.

     According to the Monetarists wages and prices are completely flexible.

The Monetarists believe that the velocity of money is a constant.

The Monetarists believe that fiscal policy results in a high level of crowding out.

Supply side economists believe that the government skews the incentive system.

The R-E economists believe that money affects real economic variables.

The Monetarists admit that wages and prices are sticky in the short run.

According to supply-siders tax cuts should go to households.

According to Milton Friedman, the Fed should increase the money supply at a constant rate each year.

According to the original supply-siders, raising taxes can raise tax revenue some of the time.

Tax Rate

Tax Base

Tax Revenue

20%

$8 Trillion

$1.6 Trillion

30%

$7 Trillion

$2.1 Trillion

40%

$5.5 Trillion

$2.2 Trillion

50%

$4 Trillion

$2.0 Trillion

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