According to supply-side economists, what is the expected outcome when tax reductions encourage individuals to work more and businesses to invest more?

Show Answers

Aggregate supply will rise, aggregate demand will fall, and the overall price level will drop.Aggregate supply will increase, leading to higher total output and a decline in the price level.Aggregate supply will grow, total output will rise, and the price level will increase.Both aggregate supply and aggregate demand will grow, causing the price level to rise.None of the above.

Explanation

Supply-side economists argue that cutting taxes boosts incentives for work and investment, which increases aggregate supply. This rise in supply results in greater total output and typically lowers the overall price level due to increased productive capacity.