Manipulating AS by enacting policies to stimulate incentives to work, save, and invest
- Tax cuts to increase disposable income
- Hard to enact policy because disincentive, people take advantage of welfare
Laffer Curve: Displays theoretical relationships between tax cuts and government revenue.
- Criticisms of the Laffer Curve
- Empirical evidence suggests that the impact of tax rates on incentives to work, save, and invest, are small
- Tax cuts can also increase demand which can fuel inflation
- Where the economy is actually located on the curve is difficult to determine
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