When income taxes are lowered in a given economy,it causes the supply of labor curve to shift __________which ___________ the equilibrium quantity of labor employed.In terms of the production function (graphed with labor on the horizontal axis and Real GDP on the vertical axis)this then causes _______________,which makes the LRAS curve shift ____________ resulting in ______________________.
A) rightward; raises; the production function to shift upward; rightward; economic growth
B) leftward; lowers; the production function to shift downward; leftward; a shrinking economy
C) rightward; raises; a movement up along a given production function; rightward; economic growth
D) rightward; raises; a movement down along a given production function; leftward; a shrinking economy

Question

Quizplus · Accepted Answer

Lowering income taxes increases the take-home pay of workers, making work more attractive and increasing the supply of labor, which shifts the supply curve rightward and raises the equilibrium quantity of labor. This results in a movement up along a given production function due to more labor being employed, not a shift of the production function itself. Consequently, this increases output, leading to economic growth and a rightward shift in the Long-Run Aggregate Supply (LRAS) curve.

When Income Taxes Are Lowered in a Given Economy,it Causes