Answer to Question #217113 in Macroeconomics for Archit Rungta

Question

In the classical model, analyze the effects of an increase in the marginal income tax rate. Explain
how output, employment, and the price level are affected.

Answer 1

Increases in the marginal income tax rate reduce output, employment, and price levels. In certain situations, the greater revenue generated by the tax rise leads to fewer public bond sales or less money creation.