An income tax hike ________ potential GDP by ________.
A) increases; not crowding out investment
B) decreases; limiting the use of discretionary monetary policy
C) increases; offsetting the Barro-Ricardo effect
D) decreases; decreasing the supply of labor

Question

Quizplus · Accepted Answer

An income tax hike will decrease potential GDP by decreasing the supply of labor, as higher taxes reduce the incentive for individuals to work and instead encourage leisure time. This can lead to decreased productivity and a decrease in potential output.

An Income Tax Hike ________ Potential GDP by ________

An Income Tax Hike Potential GDP by