Marginal Tax Rates

[leilanikiri]

I am having trouble with a question for an assignment, and wanted more clarity.

Other things constant, a reduction in marginal tax rates will tend to increase aggregate supply because the lower taxes will increase

a. savings, which will lead to lower interest rates, an increase in consumption, and an increase in aggregate supply.
b. disposable income, which will induce an increase in consumption and aggregate supply.
c. the attractiveness of productive activity relative to leisure and tax avoidance.
d. business optimism, which will increase both investment and aggregate supply.

I would choose c because coming from the suppliers point of view they would produce more as consumers are spending more. But I also agree with B. Any suggestions?

 

[piezoe]

e. deficits, which will lead to excessive borrowing; which will lead to a good time had by all; which will lead to an increase in nominal tax revenues; which will lead to re-election; which will lead to a false sense of invincibility, and throwing caution to the wind; which will lead to election of idiots; which will lead to another war; which will lead to economic crisis; which will lead to quantitative easing; which will lead to excessive inflation; which will lead to tightening; which will lead to a decrease in aggregate supply; which will lead to a reduction in marginal tax rates, etc.

f. none of the above, you Jackass, because "other things" can't remain constant.