A tax cut increases ______.
a. aggregate demand but has no effect on aggregate supply
b. aggregate demand because it increases consumption expenditure and decreases aggregate supply because labor productivity falls
c. aggregate demand because it increases disposable income and increases aggregate supply because it is an incentive to supply more labor
d. aggregate supply but has no effect on aggregate demand
It really depends on where the tax cut was applied. If it was a cut in profit tax for firms, then you could say that it is D, as firms will reinvest profits into production and amke more. But if it was an income tax cut, then it can be A,
