If income taxes were cut significantly, the likely outcome would be a small negative impact on...
If income taxes were cut significantly, the likely outcome would be
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a small negative impact on both labor supply and LRAS |
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a small negative impact on labor supply and a small positive impact on LRAS |
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a small positive impact on both labor supply and LRAS |
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a small positive impact on labor supply and a small negative impact on LRAS |
Homework Answers
If income taxes were cut significantly, the likely outcome would be increase in labor supply curve (outward shfit of labor supply curve) becasue workers are willing to supply more labor at given level of real wage. Due to increase in labor supply, the long run aggregate supply will increase and shift outwards.
Thus, the likely outcome would be a small positive impact on both labor supply and LRAS.
So, the correct answer is an option (c).
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