The government is considering raising the tax rate on labor income. Explain the supply-side effects of such an action and use appropriate graphs to show the directions of change, not exact magnitudes. What will happen to:
- The supply of labor and why?
- The demand for labor and why?
- Equilibrium employment and why?
- The equilibrium before-tax wage rate and why?
- The equilibrium after-tax wage rate and why?
- Potential GDP?
Explain your response with specifics and provide examples.
In your replies:
- Share past experiences that may relate to your peers’ responses.
- If you found any of your peers’ tips or ideas useful, share them and explain why you might use them yourself in the future.
- Provide any input that may be useful in your peers’ initial post.
Cite and reference sources according to APA Style.