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- Subject
- Supply-Side Policieseconomics-mcqs › supply-side-policies
- Published
- 29 May 2019
- Last updated
- 28 May 2026
Supply-side economists argue that lowering tax rates leads to an increase in labor supply. What does this suggest about the effects of wage changes?
Multiple choice question for Supply-Side Policies. Select an option, then review the explanation below.
Explanation
Supply-side theory posits that when wages increase due to lower taxes, workers are motivated to supply more labor because the substitution effect (working more due to higher wages) dominates the income effect (working less because of higher income). Therefore, the substitution effect is stronger than the income effect.
More Supply-Side Policies MCQs
Practice related questions from the same subject.
- 1.Which of the following interventionist strategies are aimed at correcting regional disparities?
- 2.Which group proposes supporting economically depressed areas through reduced wages, lower local taxes, and decreased unemployment benefits?
- 3.What does the term 'privatization' refer to?
- 4.Reaganomics represented a significant policy change focused on addressing which aspect of the economy?
- 5.Which of the following is an example of a supply-side economic policy?