An increase in G or G' shifts the output supply curve to the right because
A)lifetime wealth decreases, a negative income effect that shifts labour supply to the right.
B)the decrease in the real interest rate shifts output supply.
C)lifetime wealth decreases, a negative income effect that shifts labour supply to the left.
D)lifetime wealth increases, a positive income effect that shifts labour supply to the right.
E)the increase in the real interest rate shifts output supply.

Question

Quizplus · Accepted Answer

An increase in government spending (G or G') can lead to a perception of decreased lifetime wealth for individuals, as they may anticipate higher taxes in the future to finance this spending. This perceived decrease in wealth can have a negative income effect, making individuals more inclined to work more to maintain their desired level of lifetime consumption. This increase in labor supply shifts the output supply curve to the right.

An Increase in G or G' Shifts the Output Supply