Question

Supply-side economics rests on the theory that if taxes are reduced,

A) People will horde their money,slowing down the economy.
B) The role and size of the federal government will expand.
C) People will have more incentve to work and more money to spend.
D) The federal government will collect less money in taxes.

Answer 1

The correct answer is C.

A tax reduction implies a decrease of the income earned by the public sector. Such income is colleted from citizens, specially from those who earn a salary, as work incomes are where the more taxes are charged.

Supply-side economics claims that a tax reduction increases the disposable income that citizens actually receive, as there are less cuts in the wage that they earn from work. This would work as an incentive and boost work figures and productivity figures as, for a higher retribution, more people will be willing to work and those who are already working will be incentived to put more effort on their tasks