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:

Demand Curve

A graphical representation showing the relationship between the price of a good or service and the quantity demanded by consumers at those prices.

Price Makers

Entities that have the ability to control the prices of the products or services they offer, due to lack of significant competition.

Downward-Sloping Demand

Describes the general tendency for the demand for a good or service to decrease as its price increases.

Monopolistic Competitors

Firms in a market structure where many companies sell products or services that are similar but not identical, allowing for competition based on quality, price, and branding.