Assume you are a supply-side economist who is an adviser to the president. If the economy is in recession, what would your fiscal policy prescription be?
2. Suppose Congress enacts a tax reform law and the average federal tax rate drops from 30 percent to 20 percent. Researchers investigate the impact of the tax cut and find that the income subject to the lower tax rate increases from $500 billion to $800 billion. The theoretical explanation is that workers have increased their work effort in response to the incentive of lower taxes. Is this a movement along the downward-sloping or the upward-sloping portion of the Laffer curve?
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