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# Some economists view the Kennedy-Johnson tax cut of 1964, which radica

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Re: Some economists view the Kennedy-Johnson tax cut of 1964, which radica [#permalink]
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Tax cuts --> Reduced corporate and individual taxes --> Economic Prosperity

A, C and D state that tax cuts led to economic prosperity - Eliminate A, C and D

Between B and E:
(B) Improved economic conditions in Western Europe and Japan resulted in substantially increased demand for United States manufactured goods in the late 1960's. - Correct

(E) In the late 1960's, unemployment was relatively low compared with the early 1960's. - Incorrect - Relatively low unemployment may not result in substantial prosperity.

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Re: Some economists view the Kennedy-Johnson tax cut of 1964, which radica [#permalink]
AjiteshArun how do we know that the united states was in fact able to meet the increase in demand? There isn't any sort of linkage mentioned anywhere in the argument. Option b simply tells us that there was an increase in demand of the goods manufactured in the US.

Kindly help

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Some economists view the Kennedy-Johnson tax cut of 1964, which radica [#permalink]
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If an economy is enjoying "substantial prosperity", we can assume that it is meeting a higher level of demand. The question here is what led to that ability to meet a higher level of demand. Was it something domestic (a tax cut) or was it foreign trade?

The question tells us that the US enjoyed substantial prosperity in the late 1960s and early 1970s. This means that ~the US economy was doing well then. We know that increased demand could have been a reason for that. The question says that something ("the Kennedy-Johnson tax cut of 1964") that is capable of increasing demand (let's call it domestic demand) in the US was not the reason for the substantial prosperity mentioned in the question.

Option B gives us reason to believe that the 1964 tax cut was not the impetus for the prosperity by:
1. Giving us something else (an alternative, foreign demand) that could explain the substantial prosperity.
2. Moving the alternative much closer to where we want it: (a) tax cut 1964, (b) foreign demand late 1960s, and (c) substantial prosperity late 1960s and early 1970s.
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Re: Some economists view the Kennedy-Johnson tax cut of 1964, which radica [#permalink]
(A) Modernized, more productive factories were built in the late 1960s as a result of the funds made available by the tax cut.

Strengthens the conclusion; It suggests that the KJ tax cut led to the availability of funds that resulted in building more production factories.

(B) Improved economic conditions in Western Europe and Japan resulted in substantially increased demand for the United States manufactured goods in the late 1960s.

Suggests that KJ tax cut, but another factor led to the increased demand for the United States manufactured goods leading to prosperity.

This option clearly attacks the premises on which the argument rests, hence this is the correct answer.

(C) The tax cut of 1964 contained regulations concerning tax shelters that prompted investors to transfer their savings to more economically productive investments.

Strengthening the argument as in (A)

(D) Personal income after taxes rose in the years following 1964.

If tax rates are cut then post-tax income is bound to rise, irrelevant...

(E) In the late 1960s, unemployment was relatively low compared with the early 1960s.

Irrelevant , unemployment has no role here...

Hence correct answer must be (B)
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Re: Some economists view the Kennedy-Johnson tax cut of 1964, which radica [#permalink]
EducationAisle

Quote:
(C) The tax cut of 1964 contained regulations concerning tax shelters that prompted investors to transfer their savings to more economically productive investments.

What is the meaning conveyed by choice (C)? Does it mean that due to the tax cuts there investments made in the country reduced? If so, doesn't this show that the tax cuts reduced the prosperity?
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Re: Some economists view the Kennedy-Johnson tax cut of 1964, which radica [#permalink]
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Hoozan wrote:
What is the meaning conveyed by choice (C)? Does it mean that due to the tax cuts there investments made in the country reduced? If so, doesn't this show that the tax cuts reduced the prosperity?

Notice C says: The tax cut of 1964 contained regulations concerning tax shelters that prompted investors to transfer their savings to more economically productive investments.

Let's take an example:

Suppose that before 1964, people put their savings in savings bank accounts.

C says: The tax cut of 1964 contained regulations concerning tax shelters.

Suppose Kennedy-Johnson act of 1964 stipulated that investments in infrastructure would be a tax shelter (meaning these investments would be exempted from tax).

Consequently, (as per C), people transferred their savings (savings bank accounts) to more economically productive investments (such as infrastructure).

This will clearly result in a lot of funds available for infrastructure, thereby leading to substantial development and prosperity.

Hence, C is actually strengthening the claim that the tax cut of 1964 was the impetus for economic prosperity.
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Re: Some economists view the Kennedy-Johnson tax cut of 1964, which radica [#permalink]
The statement in question claims that the tax cut of 1964 was the impetus for economic prosperity in the United States during the late 1960s and early 1970s. To weaken this claim, we need to find an option that provides an alternative explanation for the economic prosperity during that period, unrelated to the tax cut.

Option (A) suggests that the tax cut led to the construction of modernized, more productive factories, which could contribute to economic prosperity. This option does not weaken the claim and could actually support it.

Option (B) states that improved economic conditions in Western Europe and Japan resulted in increased demand for US manufactured goods. This provides an alternative explanation for economic prosperity, suggesting that external factors rather than the tax cut were the driving force.

Option (C) suggests that the tax cut regulations prompted investors to transfer their savings to more economically productive investments. This implies that the tax cut itself did not directly lead to economic prosperity but rather influenced investment decisions.

Option (D) states that personal income after taxes rose in the years following 1964. This information could support the claim rather than weaken it, as it suggests positive effects resulting from the tax cut.

Option (E) mentions that unemployment was relatively low in the late 1960s compared to the early 1960s. This supports the claim that economic prosperity occurred, but it does not directly weaken the claim about the tax cut being the impetus.

Among the options, (B) provides the strongest alternative explanation for the economic prosperity during the late 1960s and early 1970s, suggesting that external factors such as improved economic conditions in Western Europe and Japan played a significant role. Therefore, (B) would most weaken the claim that the tax cut of 1964 was the impetus for the economic prosperity.
Re: Some economists view the Kennedy-Johnson tax cut of 1964, which radica [#permalink]
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