Supply-side economic theory:
A) Predicts that a decrease in the highest income tax rates will cause an increase in government revenues.
B) Is inconsistent with the substitution effect.
C) Was a clear failure following the Reagan administration tax cuts of the 1980s.
D) Predicts that taxpayers will save their tax windfall from a rate cut rather than spend or investment the windfall.

Question

Quizplus · Accepted Answer

Supply-side economic theory posits that lowering taxes, especially on businesses and high-income earners, can lead to economic growth. This growth, in turn, can increase government revenues despite the lower tax rates, as the overall taxable base expands due to increased economic activity. This theory was notably applied during the Reagan administration in the 1980s, where tax cuts were implemented with the intention of stimulating economic growth.

Supply-Side Economic Theory