An increase in income tax _______ potential GDP by shifting the labour _______.

Question

Quizplus · Accepted Answer

An increase in income tax will decrease the potential GDP as it will lead to a decrease in disposable income and a decrease in consumer spending. This will result in a leftward shift in the supply curve as firms will produce fewer goods and services. Additionally, labor demand will decrease as firms will hire fewer workersdue to a decrease in output, which will result in a leftward shift in the labor demand curve.

An Increase in Income Tax _______ Potential GDP by Shifting