If tax rates are cut so that people have an increased incentive to work and businesses have an increased incentive to invest,
A) aggregate supply will increase, aggregate output will increase, and the price level will increase.
B) aggregate supply will increase, aggregate output will increase, and the price level will decrease.
C) both aggregate supply and demand will increase, aggregate output will increase, and the price level will increase.
D) aggregate supply will increase, aggregate demand will decrease, aggregate output will increase, and the price level will decrease.

Question

Quizplus · Accepted Answer

Cutting tax rates increases incentives for work and investment, which in turn increases aggregate supply and aggregate output. However, the increased competition from increased supply will lead to lower prices, resulting in a decrease in the general price level.

If Tax Rates Are Cut So That People Have an Increased