Which of the following statements is (are) true? I. Changes in tax rates only impact aggregate demand.
II) According to the Laffer curve, if the tax rate is above 50%, lowering the tax rate will always raise tax revenue.
III) A repeal of existing investment tax credits will lead aggregate supply to shift to the left.

Question

Quizplus · Accepted Answer

Changes in tax rates can impact both aggregate demand and aggregate supply. The Laffer curve suggests that there is an optimal tax rate that maximizes revenue, but it does not specify that lowering tax rates above 50% will always increase revenue. Repealing investment tax credits can reduce incentives for investment, leading to a leftward shift in aggregate supply.

Which of the Following Statements Is (Are) True? I