7. Suppose the government decides to reduce the marginal income tax rate across all income brackets, effectively making it more attractive for workers to provide their labor. a. Use the labor market diagram model to illustrate this shock; be sure to label your initial equilibrium and your new equilibrium. b. Assuming the population and the labor force are held constant, explain what the effect of the shock is on wages, the employment-to-population ratio and unemployment. c. If we did not hold the labor force constant, how might your answer to part b change? Suppose that wages are rigid and do not immediately adjust to the shock. How might this impact unemployment in the short-run? d.

7. Suppose the government decides to reduce the marginal income tax rate across all income brackets, effectively making it more attractive for workers to provide their labor. a. Use the labor market diagram model to illustrate this shock; be sure to label your initial equilibrium and your new equilibrium. b. Assuming the population and the labor force are held constant, explain what the effect of the shock is on wages, the employment-to-population ratio and unemployment. c. If we did not hold the labor force constant, how might your answer to part b change? Suppose that wages are rigid and do not immediately adjust to the shock. How might this impact unemployment in the short-run? d.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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