Answer to Question #225832 in Macroeconomics for Nawabii

Question

Suppose that government changes its fiscal policy and imposes income tax on the per hour wage that 

labor earns. This would affect output and employment in Classical Model. True or false give reson in five lines

Answer 1

True

In this case, the employment and output would be negatively affected. This comes as the policy will bring up some limits within organization making them to eliminate some of the practices that were generating income within the company hence causing unemployment. Imposing taxes at all cases reduces the amount of generated income within the organization. Therefore, the output and employment would be adversely affected.