Refer to the graph. If tax rates are between b and d, then supply-side economists are of the opinion that a(n)
A) increase in tax revenues will increase tax rates.
B) decrease in tax rates will increase tax revenues.
C) increase in tax rates will increase tax revenues.
D) decrease in tax revenues will decrease tax rates.

Question

Refer to the graph. If tax rates are between b and d, then supply-side economists are of the opinion that a(n)
A) increase in tax revenues will increase tax rates. 
B) decrease in tax rates will increase tax revenues. 
C) increase in tax rates will increase tax revenues. 
D) decrease in tax revenues will decrease tax rates.

Quizplus · Accepted Answer

According to supply-side economics, if tax rates are between b and d, then a decrease in tax rates will increase tax revenues. This theory assumes that lower tax rates will incentivize businesses and individuals to work more, invest more, and innovate more, which ultimately leads to increased economic growth and higher tax revenues. Therefore, the best choice is B.

Refer to the Graph