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6.3 Explain the effect that each of the following fiscal policy measures could have on aggregate supply a. The reduction of taxes on capital gains b. Reducing the higher marginal individual income tax rates to the same level as the company income tax rate C. Increasing the marginal income tax rates paid by individuals.

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Answer #1

Answer 6.3 The fiscal policy are the governmental policies which are formulate to stimulate and well functioning of an economy.

A The reduction of taxes on capital gain:

It means that a lender earned a capital gain if he/ she purchases an asset and sell after some time at higher price. When capital gain taxes has been reduced than there is a tremendous increases in the aggregate supply.

B: Reducation in the higher Marginal individual income tax rate to the same level as company income tax rate

It means that aggregate supply has been increased because workers have more incentive to work as compare to earlier scanerio.

C: Increasing Marginal income tax rate paid by individual

It means that aggregate supply has been decreased because workers has no incentive to work in the enterprise as more taxes has been paid as income increases.

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