Question

lower income taxes cause a _____________ shift of the labor supply curve, which then produces _____________ real gdp.

• rightward; more
• leftward; less
• rightward; less
• leftward; more

Explanation:

Analyze the effect of lower income taxes on labor supply

Lower income taxes increase the after-tax wage rate for workers, which increases the opportunity cost of leisure. This incentivizes individuals to work more hours and encourages more people to enter the labor force, resulting in an increase (rightward shift) of the labor supply curve.

Determine the impact on Real GDP

An increase in the supply of labor leads to a higher equilibrium level of employment in the economy. With more labor employed in production, the economy's productive capacity increases, which produces more Real GDP.

Answer:

• (A) rightward; more (Correct answer)
• (B) leftward; less
• (C) rightward; less
• (D) leftward; more