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Suppose labour supply depends positively on net of tax wage (Wt) and labour demand depends negatively on gross wage. [5 points] a) Assuming perfectly flexible
Suppose labour supply depends positively on net of tax wage (Wt) and labour demand
depends negatively on gross wage. [5 points]
a) Assuming perfectly flexible wages and prices, what will be the effect on the market
clearing level of employment (N), and output (Y), of a cut in the marginal tax rate
(t).
b) Total tax revenues T = t* Wt*N. What will be the effect of a tax cut on total
revenues?
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