In the classical model,and increase in tax on firms that hired labor would
A)decrease labor demand and the real wage and increase output.
B)decrease labor supply,increase the real wage,and decrease output.
C)decrease labor demand,decrease the real wage,and decrease output.
D)reduce real wages and increase output.

Question

Quizplus · Accepted Answer

According to the classical model, an increase in tax on firms that hire labor would decrease labor demand as firms spend more money on taxes and less on labor. This decrease in labor demand would lead to a decrease in the real wage, as there are fewer jobs available for workers, and a decrease in output, as firms produce less due to the higher taxes. Thus, choice C is the best option.

In the Classical Model,and Increase in Tax on Firms That