A substantial cut in marginal tax rates, other things constant, would:

Question

Quizplus · Accepted Answer

A substantial cut in marginal tax rates would increase disposable income, leading to increased consumption and investment, thus increasing real gross domestic product in the short run. In the long run, however, the increase in government borrowing to finance the tax cut would lead to higher interest rates, crowding out private investment and reducing real gross domestic product.

A Substantial Cut in Marginal Tax Rates, Other Things Constant