Which of the Following Is True If the Government Cuts

question 100

Multiple Choice

Which of the following is true if the government cuts taxes in a way that reduces marginal tax rates as opposed to a way that does not reduce marginal tax rates if the impact on tax revenues is the same in both cases?

• A)Both actions will exert the same impact on aggregate supply and demand
• B)Lower marginal tax rates will increase the incentive to earn income and, thereby, stimulate aggregate supply.
• C)Both cases will increase people's incentive to save in the expectation of higher future taxes and, thereby, offset the stimulus effect of lower taxes.
• D)Interest rates will increase if marginal tax rates are lowered, whereas they will decrease if marginal tax rates are left unchanged.
• E)Interest rates will increase if marginal tax rates are lowered, whereas they will decrease if marginal tax rates are left unchanged

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Definitions:

Neutral Third Party

An unbiased individual or group engaged to mediate or arbitrate between conflicting parties.

Mediation

A form of alternative dispute resolution where a neutral third party, the mediator, helps disputing parties find a mutually satisfactory solution.

Dispute

A disagreement or argument about something important.

Compel Arbitration

A legal process where a court requires disputing parties to resolve their issues through arbitration rather than litigation.