Question

What is the effect of a rise in income tax on the labor supply market? A) It decreases aggregate supply and potential GDP. B) It increases aggregate supply and potential GDP. C) It decreases aggregate supply, but does not affect GDP. D) It increases aggregate supply and decreases potential GDP.

Answer 1

A

Step-by-step explanation:

The supply of labor decreases because of a decrease in the after-tax wage rate this decreases a labor decreases the potential output of an economy known as GDP