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

Economics Dec 12, 2020

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

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

b. Reduced tax rates will improve savings and lead to increased investment spending and increased AD c. The increases in SRAS and AD will increase Real GDP without affecting the price level

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

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

Expert Solution

Option d. is correct.

It is because the supply-siders argue that reduction in the tax rates will not result in the loss of tax revenue as the government can get a higher tax collection even at the low tax rates due to high productivity, employment, and output.

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