Which of the following propositions would a proponent of supply-side economics be most likely to stress?
A)Higher marginal tax rates will lead to a reduction in the budget deficit and lower interest rates, because they expand government revenues.
B)Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output, because they encourage investors to undertake low-productivity projects with substantial tax-shelter benefits.
C)Income redistribution payments will exert little impact on real aggregate supply, since they do not consume resources directly.
D)A tax reduction will increase the disposable income of households.Thus the primary impact of a tax reduction on aggregate supply will stem from the influence of the tax change on the size of the budget deficit or surplus.

Question

Which of the following propositions would a proponent of supply-side economics be most likely to stress?
A)​Higher marginal tax rates will lead to a reduction in the budget deficit and lower interest rates, because they expand government revenues.
B)​Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output, because they encourage investors to undertake low-productivity projects with substantial tax-shelter benefits.
C)​Income redistribution payments will exert little impact on real aggregate supply, since they do not consume resources directly.
D)​A tax reduction will increase the disposable income of households.Thus the primary impact of a tax reduction on aggregate supply will stem from the influence of the tax change on the size of the budget deficit or surplus.

Quizplus · Accepted Answer

Supply-side economics emphasizes the role of tax rates on the incentives for people to produce and to use resources efficiently. It argues that higher marginal tax rates discourage work, saving, and investment, and lead to a less efficient allocation of resources, which in turn reduces aggregate output.

Which of the Following Propositions Would a Proponent of Supply-Side