Which of the following factors would be most likely to lead to an increase in aggregate supply (AS) for an economy?

Question

BlackTom AI · Accepted Answer

Aggregate supply (AS) increases when an economy’s ability or willingness to produce goods and services rises — either because production costs fall, resources become more available, or firms are more incentivized to produce and invest.

1. Relevant knowledge points and concepts
- Aggregate supply: total quantity of goods and services firms are willing to supply at each price level. An increase in AS (a rightward shift) means higher output at every price level.  
- Determinants of AS include input costs (wages, taxes, raw materials), productivity, labor supply, capital stock, and business incentives/confidence. Lower costs or greater productive capacity raise AS; higher costs or reduced capacity lower AS.

2. Step-by-step reasoning
- Evaluate each option by asking: does this change raise productive capacity or lower firms’ costs/increase incentives to produce?
- Option a: An increase in the central bank’s cash rate raises interest rates → higher borrowing costs for firms → investment and production become more expensive → AS would shrink or shift left.
- Option b: A decline in business confidence reduces investment and expansion plans → less capital formation and lower current supply → AS would decrease.
- Option c: A decrease in population reduces available labor and market size → potential output falls → AS would decrease.
- Option d: A decrease in the rate of business taxation lowers firms’ tax burden → increases after-tax profits, reduces marginal cost, and encourages investment and production → firms can supply more at each price level → AS increases.

3. Intermediate “calculations” (logical)
- Lower business taxes → lower per-unit cost and higher post-tax returns → ↑ investment and output capacity → AS shifts right.

4. Why the correct answer is correct
- Lower business taxes directly reduce production costs and improve incentives for firms to expand output and invest, which increases aggregate supply.

5. Why other options are incorrect
- a raises costs (reduces AS). b reduces investment and production (reduces AS). c reduces labor and potential output (reduces AS).

6. Conclusion
- Therefore the correct choice is d. A decrease in the rate of business taxation would be most likely to lead to an increase in aggregate supply (AS). This matches the provided answer.

Which of the following factors would be most likely to lead to an increase in aggregate supply (AS) for an economy?单项选择题

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