Suppose last year Moe faced a 25% marginal tax rate. This year tax rates increased and now Moe faces a 30% marginal tax rate. Moe chooses to work more hours this year because

Question

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Moe must work more hours to have the same after-tax income this year because the marginal tax rate has increased. Working more hours will allow Moe to earn more income to offset the increased tax rate. Choice A is irrelevant to the situation. Choice B is incorrect because the opportunity cost of leisure has increased with the higher tax rate. Choice C is also incorrect for the same reason as B.

Suppose Last Year Moe Faced a 25% Marginal Tax Rate