What would likely happen to the long-run aggregate supply curve if the U.S. federal government increases marginal tax rates on wages?
A)The LRAS curve would shift rightward.
B)The LRAS curve would shift leftward.
C)The LRAS curve would remain stable while the AD curve would shift leftward.
D)The LRAS curve would remain stable while the AD curve would shift rightward.

Question

Quizplus · Accepted Answer

Increasing marginal tax rates on wages would reduce the incentive for people to work and invest, thus reducing the long-run potential output. This would result in a leftward shift of the LRAS curve.

What Would Likely Happen to the Long-Run Aggregate Supply Curve