With an Increase in Government Purchases Financed by an Increase

question 23

Multiple Choice

With an increase in government purchases financed by an increase in the marginal tax rate on labour income, the change in labour supply depends on whether the:

• A)negative substitution effect is bigger than the positive income effect.
• B)negative substitution effect is bigger than the negative income effect.
• C)positive substitution effect is bigger than the negative income effect.
• D)positive substitution effect is bigger than the positive income effect.

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