Why does a temporary increase in government purchases increase labour supply in the classical model?
A)The rise in government spending increases labour demand,increasing the real wage,and so people increase their labour supply.
B)Increased government purchases make people better off,so they work more hours.
C)The increase in current or future taxes needed to pay for the increase in government purchases reduces people's wealth.
D)People prefer to work harder when the government is doing more for them.

Question

Quizplus · Accepted Answer

The increase in government purchases implies higher current or future taxes, reducing people's perceived wealth, which incentivizes them to work more to maintain their consumption levels.

Why Does a Temporary Increase in Government Purchases Increase Labour