A decrease in tax rates
A)has no effect on the AD curve.
B)can lead to an increase in potential GDP.
C)causes the AD curve to shift left.
D)has no long-run effect on potential GDP.
E)has only a short-term effect on real GDP.

Question

Quizplus · Accepted Answer

A decrease in tax rates can provide an incentive for individuals and businesses to work and produce more, leading to an increase in potential GDP in the long run. This is because lower taxes increase disposable income and reduce the cost of production, which can stimulate economic growth and productivity.

A Decrease in Tax Rates