A decrease in taxes on business investments will decrease aggregate supply.Group of answer choicesTrueFalse
Question
A decrease in taxes on business investments will decrease aggregate supply.
Group of answer choices
- True
- False
Solution
The statement is False.
A decrease in taxes on business investments typically encourages businesses to invest more since they retain a larger portion of their profits. This increase in investment can lead to greater capacity and efficiency in production, which in turn increases aggregate supply.
Aggregate supply represents the total supply of goods and services that firms in an economy plan on selling during a specific time period. Lower taxes on investments can lead to increased production capacity and ultimately, a rightward shift in the aggregate supply curve.
In summary, a decrease in taxes on business investments is likely to lead to an increase in aggregate supply, not a decrease.
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