ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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weakens the incentive to work.
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decreases potential GDP.
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increases potential GDP because people work more to pay higher taxes.
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Both answers A and B are correct.
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none of the above is correct.
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Detailed explanation-1: -The aggregate supply curve shifts to the right as productivity increases or the price of key inputs falls, making a combination of lower inflation, higher output, and lower unemployment possible.
Detailed explanation-2: -An increase in income taxes reduces disposable personal income and thus reduces consumption (but by less than the change in disposable personal income). That shifts the aggregate demand curve leftward by an amount equal to the initial change in consumption that the change in income taxes produces times the multiplier.
Detailed explanation-3: -A shift in aggregate supply can be attributed to many variables, including changes in the size and quality of labor, technological innovations, an increase in wages, an increase in production costs, changes in producer taxes, and subsidies and changes in inflation.
Detailed explanation-4: -The aggregate supply of labor is the total amount of labour supplied by everyone in the economy. The aggregate quantity of labour supplied increases when the economy-wide real wage rises.