Looking at the Supply-Side Effects on Aggregate Supply Shows That

question 68

Multiple Choice

Looking at the supply-side effects on aggregate supply shows that a tax hike on labor income

• A) weakens the incentive to work.
• B) decreases potential GDP.
• C) increases potential GDP because people work more to pay the higher taxes.
• D) Both answers A and B are correct.

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Definitions:

Corporate Tax Rate

The rate at which businesses are taxed on their profits by the government.

Corporate Tax Rate

The percentage of corporate profits that companies are required to pay to the government as tax.

Fixed Costs

These are expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.

Economy Strong

A state wherein an economy is experiencing robust growth, low unemployment, and increasing levels of consumer spending and business investment.