Reducing tax rates affects only aggregate supply.

Question

Quizplus · Accepted Answer

Reducing tax rates can affect both aggregate supply and aggregate demand. By reducing tax rates, consumers and businesses have more disposable income, which can lead to an increase in consumer spending and investment. This increase in demand can lead to an increase in aggregate demand. Additionally, lower taxes can incentivize businesses to increase production and supply, leading to an increase in aggregate supply.

Reducing Tax Rates Affects Only Aggregate Supply