Suppose labour supply depends positively on net of tax wage (Wt) and labour demand depends negatively on gross wage. a) Assuming perfectly flexible wages and prices, what will be the effect on the market clearing level of employment (N), and output (Y), of a cut in the marginal tax rate (t). b) Total tax revenues T = t* Wt*N. What will be the effect of a tax cut on total revenues?
Suppose labour supply depends positively on net of tax wage (Wt) and labour demand depends negatively on gross wage. a) Assuming perfectly flexible wages and prices, what will be the effect on the market clearing level of employment (N), and output (Y), of a cut in the marginal tax rate (t). b) Total tax revenues T = t* Wt*N. What will be the effect of a tax cut on total revenues?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose labour supply depends positively on net of tax wage (Wt) and labour
a) Assuming perfectly flexible wages and prices, what will be the effect on the market clearing level of employment (N), and output (Y), of a cut in the marginal tax rate (t).
b) Total tax revenues T = t* Wt*N. What will be the effect of a tax cut on total
revenues?
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