Which of the following statements about the tax cut enacted in 1981 is correct?
A) The tax cut caused the recession of 1982.
B) The tax cut and the recession of 1982 combined to produce one of the largest peacetime deficits ever experienced up to that time.
C) The tax cut stimulated a large increase in economic activity and led directly to the balanced budget of 1982.
D) The tax cut was opposed by supply-side economists.
E) The tax cut was favored by Congress but opposed by the president and passed over his veto.

Question

Quizplus · Accepted Answer

The tax cut and the recession of 1982 combined to produce one of the largest peacetime deficits ever experienced up to that time. This is the correct statement about the tax cut enacted in 1981. The other statements are incorrect. The recession of 1982 was actually caused by a tight monetary policy aimed at reducing inflation, not the tax cut. The tax cut did not lead directly to the balanced budget of 1982, and it was actually supported by supply-side economists. The tax cut was favored by President Reagan and passed by Congress, although it did face some opposition from Democrats.

Which of the Following Statements About the Tax Cut Enacted