Question

3a. The income effect on labor supply is likely to be

(a) small because regulations prevent people from entering the labor force

(b) large because tax changes create significant labor supply changes at both the intensive and the extensive margin

(c) small because most people don't have the ability to change labor supply on the intensive margin

(d) large because most people can change labor supply on the intensive margin

3b. A cut in the corporate tax rate would lead most firms to spend the entire tax cut on new equipment.

True

False

3c. As long as tax rates are not very high, a decrease in tax rates will tend to

(a) leave the budget deficit unchanged

(b) decrease the budget deficit

(c) increase the budget deficit

(d) cause the budget deficit to first decrease then increase

Answer 1

3a. B ) Large because tax changes create significant labour supply changes at both the intensive and extensive margin.

The income effect in labor supply affected largely because tax changes create significant labour supply changes at both the intensive and extensive margin.

3b.B) false

A cut in corporate tax rate would not lead most firm to spend the entire tax cut on new equipment.

3c.C) Increases the budget deficit

As long as tax rates are not very high,a decrease in tax rate will tend to Increases the budget deficit.