Question

Higher income taxes cause a ____________ shift of the labor supply curve, which then produces __________ Real GDP. a. leftward; more b. rightward; less c. rightward; more d. leftward; less

Answer 1

Option (d) is correct.

Step-by-step explanation:

If there is an increase in the income taxes then as a result there is a leftward shift in the labor supply curve and we know that labor supply curve indicates the the amount of labor hours workers devoted towards the production of the goods. Hence, this will lead to a reduction in the real GDP as there will be less working hours devoted by the workers because of the higher income taxes.