Taking account of the supply-side effects, a tax cut on labor income _________employment and_________ potential GDP.

Question

Quizplus · Accepted Answer

When a tax cut on labor income is implemented, it increases the incentive for people to work, which leads to an increase in employment. Additionally, as more people are working and producing, the potential GDP of the economy increases as well. These are known as supply-side effects. Therefore, a tax cut on labor income increases employment and potential GDP.

Taking Account of the Supply-Side Effects, a Tax Cut on Labor