If the government cuts the tax rate, workers get to keep
A) less of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.
B) less of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.
C) more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.
D) more of each additional dollar they earn, so work effort decreases, and aggregate supply shifts left.

Question

Quizplus · Accepted Answer

With a tax rate cut, workers get to keep more of each additional dollar they earn, which creates an incentive for them to work more. This leads to increased work effort and a rightward shift of aggregate supply.

If the Government Cuts the Tax Rate, Workers Get to Keep