Which of the following governmental actions can encourage business activity?

• A. Reducing corporate tax rates
• B. Imposing stricter regulations on businesses
• C. Increasing tariffs on imported goods
• D. Raising the minimum wage significantly

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the impact of corporate tax rates on business activity. Lower corporate tax rates increase after-tax profits for businesses, which can encourage investment and expansion.
2. Step 2: Analyze the effect of imposing stricter regulations. Stricter regulations often increase compliance costs and operational complexity, which can discourage business activity.
3. Step 3: Consider the impact of increasing tariffs on imported goods. Higher tariffs can raise costs for businesses that rely on imported inputs, potentially reducing competitiveness and business activity.
4. Step 4: Evaluate the effect of raising the minimum wage significantly. While it can increase workers' income, a significant increase may raise labor costs for businesses, possibly leading to reduced hiring or higher prices.
5. Step 5: Conclude that among the options, reducing corporate tax rates is the governmental action most likely to encourage business activity because it directly improves business profitability and incentives to invest.