[Related to the Apply the Concept on page 594] In 2017,
an article in the New York Times quoted Douglas HoltzEakin, former director of the Congressional Budget Office,
as arguing that “with the economy back to near full employment, conventional tax cuts or stimulus spending won’t
have that much of an effect. What is needed are policies that
genuinely augment the supply side of the economy.”
a. If the economy is at full employment, what economic
variables will conventional tax cuts or stimulus spending not affect much? What variables might these policies affect?
b. What does Holtz-Eakin mean by “policies that genuinely augment the supply side of the economy”?
Source: Patricia Cohen and Nelson D. Schwartz, “Economists See
Little Magic in Tax Cuts to Promote Growth,” New York Times, May 23,
2017.