In the long run an increase in the marginal tax rate on asset income, _r, in the market clearing model:

Question

Quizplus · Accepted Answer

In the market clearing model, an increase in the marginal tax rate on asset income will decrease the capital stock because it reduces the incentive to save and invest. This decrease in the capital stock can lead to a decrease in GDP and may also have a negative impact on consumption in the long run. Therefore, only choice B, "decrease the capital stock," is the best option.

In the Long Run an Increase in the Marginal Tax