-Refer to Exhibit 17-4 Assume that the starting point in graphs (a)and (b)in Exhibit 17-4 is point 1.After a decrease in income taxes,there would be a ______________________ which would cause a movement along the production function from point 1 to point ______________.The result would be a shift of the LRAS curve from LRAS₁ to _______________ resulting in _______________.. A) leftward shift of the labor supply curve from S_L1 to S_L3; movement along the production function to point 3; LRAS₃; a shrinking economy B) rightward shift of the labor supply curve from S_L1 to S_L2; movement along the production function to point 3; LRAS₃; a shrinking economy C) leftward shift of the labor supply curve from S_L1 to S_L3; movement along the production function to point 2; LRAS₂; economic growth D) rightward shift of the labor supply curve from S_L1 to S_L2; movement along the production function to point 2; LRAS₂; economic growth

Question

Quizplus · Accepted Answer

After a decrease in income taxes, there will be an increase in disposable income which will cause individuals to have a greater incentive to work, resulting in a rightward shift of the labor supply curve from S_L1 to S_L2. As a result, there would be a movement along the production function to point 2, and the LRAS curve would shift rightward from LRAS₁ to LRAS₂, resulting in economic growth.

-Refer to Exhibit 17-4 Assume That the Starting Point in Graphs