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Unformatted text preview: labor. Lowering taxes on the return that people get from saving creates a greater incentive to save. Cuts in tax rates on income, IRAs
(individual retirement accounts), and capital gains all may accomplish this. If individuals keep a greater portion of each dollar of interest or capital gains income
earned, they may save more at any given interest rate. Many people argue that tax cuts, particularly cuts in capital gains r ates, will give firms stronger incentives to
develop new technology. The result of these changes, in theory, is higher potential output.
In practice, the evidence that the supply-side polices worked is mixed. The economy experienced a long expansion from about the time that the policies were put
into effect until the slowdown in growth during the second half of 1989 and the recession beginning in 1990. A detailed look at the expansion, however, suggests
some inconsistencies with supply-side predictions. There were a lot of jobs created (the growth rate of civilian employment...
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This document was uploaded on 02/26/2014 for the course ECON 100 at DePauw.
- Fall '13