Which scenario best supports the principle of supply-side economics?

The principle of supply-side economics focuses on boosting economic growth by increasing the supply of goods and services. This approach emphasizes the importance of reducing barriers for production and investment, which can be achieved through tax cuts and incentives aimed at businesses and wealthy individuals.

In the scenario where the government cuts taxes to encourage investment, this directly aligns with the core tenets of supply-side economics. Lower taxes mean that businesses retain more of their profits, which can then be reinvested into the company to expand operations, hire more workers, or innovate. This increased investment not only drives economic growth but also can lead to job creation, increased productivity, and ultimately a larger tax base as the economy grows.

The other scenarios do not reflect the primary mechanism of supply-side economics. For example, slashing prices to move excess inventory might be a short-term solution for businesses but does not address the overall increase in production or investment. Imposing trade restrictions to increase imports is contrary to the principles of supply-side economics, as it can limit competition and supply. Similarly, while industry leaders collaborating on pricing strategies may influence market dynamics, it does not inherently relate to stimulating investment or production, which are the focuses of supply-side economic policies.