Other things being constant, a reduction in marginal tax rates will tend to increase aggregate supply because:
A) tax reduction increases disposable income, which will induce an increase in consumption and aggregate supply.
B) lower tax rates will increase business optimism, which will induce additional investment expenditures and lead to a direct increase in aggregate supply.
C) lower tax rates will lead to an increase in saving, which will lead to lower interest rates, and increase in consumption, and an increase in aggregate supply.
D) tax reduction will increase the relative attractiveness of productive activity in comparison with leisure and tax avoidance, thereby increasing aggregate supply.
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