Why does a temporary decrease in government purchases decrease labour supply in the classical model?
A)people prefer to work less when government is doing less for them.
B)decreased government purchases make people worse off, so they work less hours.
C)the decrease in current or future taxes needed to pay for the decrease in government purchases increases people wealth
D)the fall in government spending decreases labour demand, decreasing the real wage, and sopeople decreases their labour supply.

Question

Quizplus · Accepted Answer

In the classical model, a temporary decrease in government purchases is perceived by individuals as a reduction in future tax obligations, thereby increasing their current wealth. This perceived increase in wealth allows individuals to afford more leisure, leading to a decrease in labor supply as they choose to work less.

Why Does a Temporary Decrease in Government Purchases Decrease Labour