The effects on the economy, if the government lowers the income tax rate.

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The effects on the economy, if the government lowers the income tax rate.

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The government is considering raising the tax rate on labor income and asks you to report on the supply-side effects of such an action. Use appropriate graphs and report directions of change, not exact magnitudes. What will happen to: i. The supply of labor ii. The demand for labor and why? Equilibrium employment and why? iii. iv. V. vi. The equilibrium before-tax wage rate and why? The equilibrium after-tax wage and why? Potential GDP?

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