Tax Cut Lowers Production Costs, Boosting Output

Steps:

• Decreasing taxes on domestically produced goods reduces costs for producers.
• Lower costs make production more profitable, incentivizing firms to expand operations.
• Firms increase output to meet potential demand at lower prices.
• Overall, national production rises as a direct result.

Why C is correct:

• In supply-side economics, tax reductions on production lower marginal costs, shifting the supply curve rightward and increasing equilibrium quantity produced.

Why the others are wrong:

• A: Exports likely increase as domestic goods become cheaper and more competitive internationally.
• B: Imports may decrease since cheaper domestic alternatives reduce foreign demand.
• D: Balance of trade improves with higher exports and stable or lower imports, not worsens.

Final answer: C