Both Keynesians and supply-siders believe a tax cut will lead to growth:
A) and both agree it works through incentive effects.
B) but Keynesians believe it works through incentive effects whereas supply-siders believe it works through aggregate demand.
C) but Keynesians believe it works through aggregate demand whereas supply-siders believe it works through incentive effects.
D) and both agree it works through aggregate demand.

Question

Quizplus · Accepted Answer

Keynesians believe that a tax cut will increase disposable income and lead to higher consumer spending, which in turn will increase aggregate demand and stimulate economic growth. Supply-siders, on the other hand, believe that a tax cut will provide incentives for individuals and businesses to work and invest more, which in turn will increase the supply of goods and services and stimulate economic growth. Both agree that a tax cut can lead to growth, but they have different explanations for why it works. Choice C accurately reflects this difference in perspective.

Both Keynesians and Supply-Siders Believe a Tax Cut Will Lead