A decrease in business taxes will tend to:

• A. decrease the demand for goods and services
• B. cause a decrease in business profits
• C. reduce the level of investment in the economy
• D. increase the supply of goods and services

Answer: (D)

Verified step by step guidance

1. Understand the role of business taxes: Business taxes are costs imposed on firms, which affect their production expenses.
2. Analyze the effect of a decrease in business taxes: When taxes decrease, the cost of production for firms falls, making it cheaper to produce goods and services.
3. Relate cost changes to supply: A reduction in production costs typically shifts the supply curve to the right, meaning firms are willing to supply more at every price level.
4. Evaluate the impact on profits and investment: Lower taxes can increase business profits, which may encourage more investment rather than decrease it.
5. Conclude the overall effect: Since supply increases due to lower costs, the correct outcome is an increase in the supply of goods and services.