According to supply-side theories, what happens if the government cuts the tax rate?
A) Workers keep less of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.
B) Workers keep less of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.
C) Workers keep more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.
D) Workers keep more of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.

Question

Quizplus · Accepted Answer

According to supply-side theories, cutting tax rates can increase the incentive for individuals to work harder and invest more, leading to an increase in aggregate supply. This is because workers keep more of each additional dollar they earn due to lower taxes, which encourages them to work more and be more productive. Therefore, choice C is the correct answer.

According to Supply-Side Theories, What Happens If the Government Cuts