Other Things Being Constant, a Reduction in Marginal Tax Rates

question 51

Multiple Choice

Other things being constant, a reduction in marginal tax rates will tend to increase aggregate supply because:

• A)tax reduction increases disposable income, which will induce an increase in consumption and aggregate supply.
• B)lower tax rates will increase business optimism, which will induce additional investment expenditures and lead to a direct increase in aggregate supply.
• C)lower tax rates will lead to an increase in saving, which will lead to lower interest rates, and increase in consumption, and an increase in aggregate supply.
• D)tax reduction will increase the relative attractiveness of productive activity in comparison with leisure and tax avoidance, thereby increasing aggregate supply.

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Definitions:

Antecedent Claim

A claim or right that precedes another in time or is earlier within a legal context or agreement.

Security Interest

A legal claim or lien on collateral that has been pledged, usually to secure repayment of a debt.

Real Defenses

Defenses available in a legal action that can be used against any claimant, not just the original party to a contract.

Personal Defenses

Legal arguments an individual can use to avoid enforcement of a contract or agreement, often based on personal circumstances or relationships.