Question

Taxes are too high. In some circumstances,

Answer 1

Answer:

The answer is: A) If taxes are lowered, government revenues actually increase.

Explanation:

For example, when consumers have to pay less money in taxes, it means they will have more money to spend. Private consumption is the most important component of the GDP. When money starts to flow, a virtuous circle of growth starts a chain of events that reinforces economic growth through a feedback loop. When the economic growth rate increases, government revenue will also increase. The virtuous circle of growth is the most important pillar of the Keynesian economic theory.

The same applies to businesses, when they pay less taxes, they can invest more in new businesses which in turn increase economic growth, which results in higher revenue for the government.

Of course this theory applies to certain small tax reductions, and under certain specific circumstances.