An income tax on labour income decreases the ________ of potential GDP,and a tax on interest income decreases the ________ of potential GDP.

Question

Quizplus · Accepted Answer

An income tax on labour income reduces the incentive for individuals to work, decreasing the level of potential GDP. A tax on interest income reduces the incentive to save and invest, decreasing the growth rate of potential GDP. This is consistent with choice C where labour income tax reduces the level, and interest income tax reduces the growth rate of potential GDP.

An Income Tax on Labour Income Decreases the ________ of Potential