The supply side theory was discredited because of all of the following reasons,

Question

The supply side theory was discredited because of all of the following reasons, except a) Reducing tax rates produced mixed effects as some people chose not to work more but to increase leisure with the increased disposable income. This produced only a negligible increase in SRAS b) Reducing tax rates did not improve incentives to save and savings and investment spending declined c) The small or negligible increase in SRAS combined with a larger increase in AD (from consumer spending) caused price levels to increase reducing real income d) The tax cuts caused massive deficits as opposed to increases in revenues e) The tax cuts left the budget in a neutral position causing neither deficits or surpluses The supply side theory was discredited because of all of the following reasons, except a) Reducing tax rates produced mixed effects as some people chose not to work more but to increase leisure with the increased disposable income. This produced only a negligible increase in SRAS b) Reducing tax rates did not improve incentives to save and savings and investment spending declined c) The small or negligible increase in SRAS combined with a larger increase in AD (from consumer spending) caused price levels to increase reducing real income d) The tax cuts caused massive deficits as opposed to increases in revenues e) The tax cuts left the budget in a neutral position causing neither deficits or surpluses

Explanation / Answer

Option B.

Reduction in the tax rates will improve the incentives to save and will increase investment spending.

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