According to Supply-side economists. if taxes are cut so that people have an increased incentive to work and businesses have an increased incentive to invest ?
Correct answer: B. aggregate supply will increase will increase aggregate output will increase and the price level will decrease
- A. aggregate supply will increase will increase aggregate demand will decrease and the price level will decrease
- B. aggregate supply will increase will increase aggregate output will increase and the price level will decrease
- C. aggregate supply will increase will increase aggregate output will increase and the price level will increase
- D. both aggregate supply and demand will increase will increase and the price level will increase
Explanation
Lower taxes can strengthen incentives to work and invest, shifting aggregate supply to the right. In the standard supply-side model, this raises real output and lowers the price level, giving option b.
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