The supply-side effects of an income tax cut ________ potential GDP and ________ aggregate supply.

Question

Quizplus · Accepted Answer

An income tax cut increases the incentive for individuals to work and invest, which can lead to an increase in productivity and economic growth. This increase in productivity results in an increase in potential GDP. At the same time, an increase in productivity means that firms can produce more goods and services at a lower cost, which leads to an increase in aggregate supply. Therefore, the correct answer is A) increase; increase.

The Supply-Side Effects of an Income Tax Cut ________ Potential