Suppose the Government Implements a Permanent Reduction in the Net

Multiple Choice

Suppose the government implements a permanent reduction in the net tax rate in an effort to increase real GDP.One disadvantage of this policy is that

A) the effect of economic shocks on government revenues becomes more volatile,while the economy becomes more stable.
B) further reductions in the net tax rate will be required to maintain the effectiveness of the tax rate as an automatic stabilizer.
C) private investment is crowded out,which may reduce the future growth rate of potential output.
D) the effect of the automatic stabilizer is reduced and the economy will be more unstable.
E) both C and D are correct.