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

Question

Quizplus · Accepted Answer

A temporary decrease in government purchases implies lower current or future taxes, increasing individuals' perceived wealth, leading them to supply less labor as they feel wealthier.

Why Does a Temporary Decrease in Government Purchases Decrease Labour