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

question 13

Multiple Choice

Which of the following propositions would a proponent of supply-side economics be most likely to stress?

• A) Because they expand government revenues, higher marginal tax rates will lead to a reduction in the budget deficit and to lower interest rates.
• B) Because they encourage investors to undertake low-productivity projects with substantial tax-avoidance benefits, higher marginal tax rates promote economic inefficiency.
• C) Because they do not consume resources directly, income redistribution payments will exert little impact on real aggregate supply.
• D) 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.

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Definitions:

Fixed Costs

Business expenses that remain constant regardless of production volume, such as rent or salaries.

Total Overhead Variance

The difference between the actual overhead costs incurred and the standard or budgeted overhead costs anticipated for a particular period.

Direct Labor Hours

The total hours worked by employees directly involved in the manufacturing process or providing a service.

Manufacturing Overhead

Costs incurred in the manufacture of a product which are not directly traceable to specific units produced, such as utility costs and maintenance expenses.