1. Supply-Side economics emerged during the so-called "Oil Crisis" of the 19703. The high price of oil created a "supply shock" that is, a decrease in Aggregate Supply. a. Explain the effect of decreased Aggregate Supply on GDP, the unemployment rate, and the inflation rate. Explaln means state what decreased AS would do to GDP, the unemployment rate, and the inflation rate and describe the process by which the decreased AS would bring about those changes. A properly drawn and labeled graph likely will improve your answer but a graph ls not requlred for full credit on this question. b. Explain why traditional fiscal policy and monetary policy were not capable of solving the problems that resulted from the decreased Aggregate Supply. A properly drawn and labeled graph likely will lmprove your answer but a graph ls not required for full credlt on this question. c. Explain why Supply-Side policies (if indeed they worked) would be better suited for solving the problems that resulted from the decreased Aggregate Supply. A properly drawn and labeled graph likely will lmprove your answer but a graph ls not required for full credlt on this question. 2. At the heart of what we call Supply-Side economics is the idea that cutting individual income tax rates would be good for the economy. Describe two effects from cutting individual income tax rates that would, according to Supply-Side economics, lead to higher GDP, lower unemployment, and lower inflation. For full credit, both of the effects that you describe must affect Aggregate Supply, not Aggregate Demand. 3. In 2013, the state of Kansas reduced tax rates on highest personal incomes and eliminated taxes completely on certain kinds of businesses. Over the next several years, the state had a very large budget deficit. Income and employment in Kansas increased at a slower rate than in surrounding states (which did not cut their tax rates). Explain what the Kansas experience tells us about the effectiveness of Supply- Side economics. 4. Under President Trump's leadership, Congress passed the Tax Cuts and Jobs Act of 2017. The basic effect of the plan was to cut taxes on individuals and businesses. The individual tax cuts were only to last for a couple of years under this plan while the business tax cuts were made more or less permanent. The Trump Administration argued that the tax cuts would allow businesses to invest more, thereby increasing GDP. Furthermore, the increase in GDP would be large enough that, despite the tax cuts, the budget deficit would be reduced. That is, the tax cuts were largely a supply-side idea Here is what happened after the tax cuts were passed (and before the pandemic hit in 2020): 0 GDP increased from 2017 to 2019 0 business investment did not increase from 2017 to 2019 0 the budget deficit got much larger from 2017 to 2019 Explain why GDP increased from 2017 to 2019 even though the business investment did not increase and the budget deficit got bigger. Explain what these results tell us about the effectiveness of supply-side economics