Question

A reduction in the tax rate on pass-through business income to a maximum of 25 percent would ________ the return to entrepreneurship, and this would ________ aggregate supply.

Answer 1

A reduction in the tax rate on pass-through business income to a maximum of 25 percent would ___increase_____ the return to entrepreneurship, and this would __increase______ aggregate supply.

Step-by-step explanation:

This is the expected outcome that should naturally follow a tax rate reduction. The returns available to the entrepreneurs would increase, thus, increasing the aggregate supply, since production (GDP) would increase from the increased productivity of the entrepreneur. Then the entrepreneurs would be able to plough back some of their returns into the business. As a result, the overall market productivity will be increased and the goods available to the market would also increase proportionately.