Question

.According to supply-side fiscal policy, reducing tax rates on wages and profits will:

a.Group of answer choices

b.reduce both unemployment and inflation.

c.create demand-pull inflation.

d.lower the price level but may trigger a recession.

e.result in stagflation.

Answer 1

The answer is C.

Step-by-step explanation:

Reducing tax rate according to supply - side policy creates demand pull inflation.

Demand pull inflation is a situation whereby people have more buying power due to the availability of cash thereby leading to high demand and consequentially leading to an increase in the price of goods and services by suppliers.

That is the process where demand outplays supply due to the high purchasing power thereby causing price to increase which is the demand pull inflation effect.