The government reduces the corporate profits tax. As a result, corporate profits increase. This will
A. increase the nonlabor income of households, causing consumption to increase and labor supply to increase.
B. increase the nonlabor income of households, causing consumption to increase and labor supply to decrease.
C. increase the nonlabor income of households, causing consumption to increase and labor supply to increase or decrease depending on the relative magnitude of the income and substitution effects.
D. have no effect on households.
Answer: B
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