According to real business cycle theory,an increase in taxes

Question

Quizplus · Accepted Answer

According to real business cycle theory, an increase in taxes would result in decreased labor supply, which would lead to a decrease in employment and output. Therefore, the correct choice is C, which indicates that taxes would significantly reduce labor supply and decrease employment and output. Option A is incorrect because it suggests that an increase in taxes would increase employment, which is not predicted by real business cycle theory. Option B is incorrect since it claims that employment will fall, but output will not be affected. Finally, D is incorrect because it implies that taxes will have no effect on employment or output, which contradicts real business cycle theory.

According to Real Business Cycle Theory,an Increase in Taxes