Most of a Tax Hike Will Be Paid by Workers

question 11

Multiple Choice

Most of a tax hike will be paid by workers if the demand for labor is ________ and the supply of labor is ________.

• A) elastic; inelastic
• B) elastic; elastic
• C) inelastic; inelastic
• D) inelastic; stable
• E) elastic; stable

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Definitions:

Active Macroeconomic Policy

Economic strategies implemented by the government or central bank to stabilize the economy by adjusting spending, taxes, and interest rates.

Expansionary Gap

A situation where the actual output in an economy is greater than the potential output due to high demand.

Nominal Wages

The amount of money an employee is paid before adjustments for inflation, reflecting the current value of money.

Real Wages

The purchasing power of wages, adjusted for inflation, showing how many goods and services can be bought with a unit of labor.