According to the Supply-Side View of Fiscal Policy, If the Impact

question 80

Multiple Choice

According to the supply-side view of fiscal policy, if the impact on tax revenues is the same, does it make any difference whether the government cuts taxes in a way that reduces marginal tax rates or in a way that does not reduce marginal tax rates?

• A)No; both actions will exert the same impact on aggregate supply and demand.
• B)Yes; only lower tax rates will increase the incentive to earn marginal income and thereby stimulate aggregate supply.
• C)No; in both cases people will increase their saving in the expectation of higher future taxes and thereby offset the stimulus effect of lower taxes.
• D)Yes; interest rates will increase if marginal tax rates are lowered, whereas they will tend to decrease if marginal tax rates are left unchanged.

---

Definitions:

Concrete Operational

A stage in Piaget's theory of cognitive development during which children gain the abilities of logical thought about concrete events, understanding the concepts of conservation, and the ability to classify and serial order.

Preoperational

A stage in Jean Piaget’s theory of cognitive development during which children from about 2 to 7 years old develop memory and imagination, but are not yet able to perform operations (logical reasoning tasks).

Sensorimotor

A developmental stage in early childhood where learning occurs through interacting with the environment using basic motor and sensory skills.

Formal Operational

Formal operational is a stage in Piaget's theory of cognitive development where individuals gain the ability to think abstractly, logically, and systematically, typically developing during adolescence.