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Author Question: Suppose that the government imposes a tax on firms for money wages they pay. How would this change ... (Read 39 times)

leilurhhh

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on: Jun 30, 2018
Suppose that the government imposes a tax on firms for money wages they pay. How would this change the classical aggregate supply curve? Why?
 
  What will be an ideal response?

Question 2

According to the new classical model,
 
  a. anticipated declines in aggregate demand would move output and employment below the full-employment levels.
  b. announced declines in aggregate demand do not change output and employment above the full-employment levels.
  c. anticipated declines in aggregate supply would only put employment below the full-employment level.
  d. unanticipated declines in aggregate demand would cause output and employment to fall below the full-employment levels.
  e. both c and d.


snackralk

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Reply #1 on: Jun 30, 2018
Answer to Question 1

The tax would effectively increase the money wage, requiring the marginal product of labor to rise and the quantity of labor to fall. This would shift the aggregate supply curve to the left.

Answer to Question 2

E


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