Once supply side effects are taken into account, tax cuts for labor income can change
I. the supply of labor
II. potential GDP.

Question

Quizplus · Accepted Answer

Tax cuts for labor income can incentivize individuals to supply more labor as they can keep more of their earnings. This increases the supply of labor (I) and consequently, it can increase potential GDP (II) as a result of increased production and economic growth. Therefore, both options I and II are affected by tax cuts for labor income.

Once Supply Side Effects Are Taken into Account, Tax Cuts