Question

Sometimes fiscal policies, such as changes in tax rates, may affect individuals' incentives to supply labor in an economy. Because of this, there may be an unintended effect called:

a. Labor Shift
b. Tax Influence
c. Incentive Consequence
d. Supply-side Outcome

Answer 1

Fiscal policies, such as changes in tax rates, can have an unintended effect called Supply-side Outcome, which affects individuals' incentives to supply labor in an economy. Tax cuts can lead to an increase in the quantity of labor supplied by inducing people to work harder and produce more real GDP. The correct option is d.

Step-by-step explanation:

The unintended effect called Supply-side Outcome may occur as a result of fiscal policies, such as changes in tax rates, affecting individuals' incentives to supply labor in an economy. These policies can influence the labor supply by changing the after-tax real wage and the relative desirability of working versus not working.

For example, a tax cut can lead to an increase in the quantity of labor supplied, as people are induced to work harder and produce more real GDP. The correct option is d.