Reductions in the personal income tax, often advocated by supply-siders to increase labor supply and effort, can be expected to also
A)decrease consumption spending.
B)increase consumption spending.
C)decrease investment spending.
D)increase export sales.

Question

Quizplus · Accepted Answer

Reduced personal income tax increases disposable income, leading to an increase in consumer spending. This is also known as the "wealth effect." However, it may lead to a decrease in government revenue and potential crowding out of investment spending. There is no direct impact on export sales.

Reductions in the Personal Income Tax, Often Advocated by Supply-Siders