4. Why does a reduction in taxes have a smaller multiplier effect than an increase in government spending of an equal amount?
10. 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 tax increases from $600 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?
8. Explain why each of the following taxes is progressive or regressive. a. A $1 per pack federal excise tax on cigarettes. b. The federal individual income tax. c. The federal payroll tax.
10. Calculate the average and marginal tax rates in the following table, and indicate whether the tax is progressive, proportional, or regressive. What observation can you make concerning the relationship between marginal and average tax rates?
2. Discuss various ways of measuring the size of the national debt.
6. Explain the theory that crowding out can weaken or nullify the effect of expansionary fiscal policy financed by federal government borrowing.
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