What would likely happen to the long-run aggregate supply curve if the U.S. federal government decreases 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

Decreasing marginal tax rates on wages would increase after-tax returns to labor, leading to increased labor supply and potential increases in capital investment. This would shift the LRAS curve rightward, indicating an increase in potential output capacity in the long run.

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