An anticipated fiscal policy in the form of a tax hike
A)increases labour supply and full-employment level of output in the Classical model.
B)increases full-employment level of output through higher aggregate demand in the Keynesian model.
C)increases leisure and decreases labour supply and output in the Classical model.
D)has the same effect in the Keynesian and Classical models.

Question

Quizplus · Accepted Answer

In the Classical model, an anticipated tax hike can lead to an increase in labor supply as individuals work more to maintain their after-tax income, thus potentially increasing the full-employment level of output.

An Anticipated Fiscal Policy in the Form of a Tax