An increase in consumption and a decrease in labor supply would result from
A) an increase in tax rates.
B) a decrease in transfer payments.
C) an increase in transfer payments.
D) a decrease in government spending.

Question

Quizplus · Accepted Answer

An increase in transfer payments would put more money in consumers' hands, leading to an increase in consumption. Additionally, if recipients of transfer payments no longer have a strong incentive to work (e.g. if the transfer payments cover their basic expenses), they may decrease their labor supply.

An Increase in Consumption and a Decrease in Labor Supply