The supply-side effects of an income tax cut ________ potential GDP and ________ aggregate supply.

Question

Quizplus · Accepted Answer

An income tax cut increases the incentive for individuals to work and earn more, which results in an increase in the supply of labor. This, in turn, increases potential GDP as more goods and services can be produced. Additionally, businesses may also be incentivized to invest more, leading to an increase in aggregate supply as well.

The Supply-Side Effects of an Income Tax Cut ________ Potential