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Former President Ronald Reagan was a supporter of supply side economics. Supply side economists believe that...

Former President Ronald Reagan was a supporter of supply side economics. Supply side economists believe that

increasing tax rates decreases aggregate demand.

reducing tax rates increases aggregate supply.

reducing tax rates increases aggregate demand.

reducing tax rates decreases aggregate supply.

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Answer #1

Correct option - reducing tax rates increases aggregate supply.

Since here we are dealing with supply side economics, therefore in this we look at effects of tax rates on production and supply of product.

When there is decrease in tax rates, it provides the incentive to the producers to increase the production because their marginal revenue increases as they have to pay less tax now.therefore, Increase in production will lead to increase in the aggregate supply.

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