Which of the following is likely to occur because of a decrease in marginal tax rates?
A)An increase in aggregate supply because of an increased incentive to work.
B)A decrease in aggregate supply because people cash in their investments.
C)A decrease in aggregate demand because of an increased incentive to work.
D)A rightward shift in the Phillips curve.

Question

Quizplus · Accepted Answer

A decrease in marginal tax rates increases the incentive to work, which results in an increase in labor supply. With an increase in labor supply, there is an increase in aggregate supply in the economy, leading to an increase in economic growth. Thus, option A is the likely outcome of a decrease in marginal tax rates. Option B is incorrect because a decrease in marginal tax rates may lead to less cashing in of investments as people have more incentive to invest. Option C is incorrect because a decrease in marginal tax rates increases disposable income and, thus, boosts aggregate demand. Option D is incorrect because there is no direct relationship between changes in marginal tax rates and the Phillips curve.

Which of the Following Is Likely to Occur Because of a Decrease