Looking at the supply- side effects on aggregate supply shows that a tax hike on labour income

Question

Quizplus · Accepted Answer

A tax hike on labor income weakens the incentive to work (A) because individuals may feel less motivated to earn additional income that will be heavily taxed. This can lead to a decrease in labor supply, which in turn can decrease potential GDP (B) as there is less labor available to produce goods and services.

Looking at the Supply- Side Effects on Aggregate Supply Shows