In the classical model,a tax on capital will
A)increase the demand for labor,the real wage,and output.
B)increase the supply of labor,reduce real wages,and increase output.
C)decrease the demand for labor,the real wage,and output.
D)have no effect on the labor market.
E)increase both labor demand and supply,which will increase output.

Question

Quizplus · Accepted Answer

In the classical model, a tax on capital is considered a distortionary tax that reduces the return on investment. This, in turn, reduces the level of investment, leading to a decrease in the demand for labor, thus reducing employment and the real wage. As a result, output decreases. Therefore, the correct answer is C.

In the Classical Model,a Tax on Capital Will