Supply side theorists claimed all of the following justifications for their theo

Question

Supply side theorists claimed all of the following justifications for their theory, except:

Reduced tax rates improve incentives to work and will thereby increase the

a) Reduced tax rates will improve savings and lead to increased investment spending and increased AD

b) The increases in SRAS and AD will increase Real GDP without affecting the price level

c) The reduction in tax rates will cause massive deficits, however.

d) The government will be able to collect more revenues (Laffer Curve)

Supply side theorists claimed all of the following justifications for their theory, except:

Reduced tax rates improve incentives to work and will thereby increase the

a) Reduced tax rates will improve savings and lead to increased investment spending and increased AD

b) The increases in SRAS and AD will increase Real GDP without affecting the price level

c) The reduction in tax rates will cause massive deficits, however.

d) The government will be able to collect more revenues (Laffer Curve)

Explanation / Answer

Option B . Supply side theorists considered that AD will only lead to increase in the price level and not impact the real variables like GDP, interest rate.

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