A large decrease in the income tax rate will most likely cause
A)a fairly large increase in aggregate demand
B)a fairly small increase in aggregate supply
C)an increase in the price level
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

A decrease in the income tax rate increases disposable income, leading to higher consumer spending (aggregate demand). It can also incentivize more work and investment, slightly increasing aggregate supply. The increase in demand often leads to higher prices, thus increasing the price level.

A Large Decrease in the Income Tax Rate Will Most