According to Supply-Side Theories, What Happens If the Government Cuts

question 12

Multiple Choice

According to supply-side theories, what happens if the government cuts the tax rate?

• A) Workers keep less of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.
• B) Workers keep less of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.
• C) Workers keep more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.
• D) Workers keep more of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.

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Definitions:

Debentures

Long-term securities issued by companies to borrow money, often with a fixed rate of interest.

Mortgage Bonds

Bonds secured by real estate or physical equipment that can be sold in case the bond issuer defaults.

Individual Investors

Private individuals who invest their own money in various financial instruments, such as stocks, bonds, or real estate, aiming to achieve personal financial goals.

Par Value

A nominal or face value assigned to a share of stock by the corporation at the time of issuance.