Looking at the supply-side effects on aggregate supply shows that a tax hike on labor income
A. weakens the incentive to work.
B. decreases potential GDP.
C. increases potential GDP because people work more to pay the higher taxes.
D. Both answers A and B are correct.
Answer:D
Looking at the supply-side effects on aggregate supply shows that a tax hike on labor income
A. weakens the incentive to work. B. decreases potential GDP. C. increases potential GDP because people work more to pay the higher taxes. D. Both answers A and B are correct.