Assume an income tax was doubled. Describe what would happen to labor supply and leisure. Can we be about the net effect on labor supply?
What will be an ideal response?
The doubling of the income tax is going to cause individuals to substitute away from the taxed activity, i.e., earning income. Thus the substitution effect of the tax is going to be decreasing labor supply and increasing leisure. The decline in after-tax income, however, is likely to cause the person to work more to make up some of the after-tax income lost from the new tax. Depending upon how large the income effect is the number of hours worked after the tax could actually increase. Since the income effect could dominate the substitution effect, we cannot be sure that the doubling of the income tax would reduce labor supply.
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Who tends to receive the benefits from a public good that increases the desirability of living in a certain area?
a. Government. b. Residents. c. Landlords. d. No one.
An important feature of representative democracy is the incentive and political power it offers participants to employ legislation to increase their wealth, either through direct transfers or through favorable public expenditures and regulations. Such benefits are called ________ , and the activity that interest groups undertake to elicit these special favors is called ________
a. taxes; tax-seeking b. dividends; portfolio management c. rents; rent-seeking d. interest; investment
Investment is:
a) An injection that increases aggregate demand b) A withdrawal that increases aggregate demand c) An injection that decreases aggregate demand d) A withdrawal that decreases aggregate demand
Which statement is true?
A. State and local governments are expected to provide more and more services while their tax bases are limited. B. State and local governments are expected to provide less and less services while their tax bases are relatively unlimited. C. Public education has traditionally been the role of the federal government. D. None of these statements are true.