Final answer:
The correct formula for calculating the tax on labor income at rate tL is 'tL * labor income'. This is used in economic models to determine taxes paid, which in turn affects consumption function and after-tax income.
Step-by-step explanation:
The formula for calculating the tax on labor income at a rate tL is A. tL * labor income. If, for example, the labor income is $300 and the tax rate is 30% (or 0.3), the calculation would be:
Taxes paid = tax rate x income = 0.3 x $300 = $90.
This corresponds with the typical method used to calculate taxes in many economic models, as detailed in the provided reference information.
Tax calculations like these are crucial for understanding changes in consumption function, after-tax income, and budget constraints.