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

Lowering business taxes reduces firms’ costs and raises after-tax returns to investment, so a tax cut is the most direct factor that would increase aggregate supply.

1) Relevant knowledge points and concepts
- Aggregate supply (AS) represents total output firms are willing to produce at each price level. A rightward shift (increase in AS) means firms can supply more at every price.
- Key determinants of AS include production costs (wages, input prices, taxes), productivity/technology, labor supply, capital stock and investment, and regulatory/tax incentives.
- A decrease in business taxation lowers firms’ marginal costs and increases incentives to invest, raising productive capacity (short-run and, via more investment, long-run AS).

2) Step-by-step reasoning
- Decreasing business tax rates: reduces per-unit cost or increases retained earnings -> firms can produce more profitably at each price -> SRAS shifts right. Lower taxes also encourage investment in capital -> increases LRAS over time.
- Evaluate each option relative to AS effects.

3) Calculations / intermediate steps
- No numeric calculation required. Intermediate logic: lower taxes → lower costs/increased after-tax return → higher production and investment → AS shifts right.

4) Why the correct answer is correct
- Option d directly reduces a cost or increases return to production and investment, enabling firms to supply more at all price levels; therefore it increases AS.

5) Why other options are incorrect
- a) Decline in business confidence reduces investment and production plans → shifts AS left (or reduces growth of AS).
- b) Higher official cash rate raises borrowing costs, discourages investment and production → reduces AS (leftward pressure).
- c) Decrease in population shrinks labor supply and demand capacity → tends to reduce AS (leftward).

6) Conclusion
- Therefore the correct answer is d. A decrease in the rate of business taxation is most likely to increase aggregate supply, matching 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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