A government enacts a policy that increases taxes on businesses. It then uses the entirety of this new revenue to fund a comprehensive upgrade to the nation's public education system and transportation networks over the next decade. Assuming these investments lead to a significant increase in average worker productivity, what is the most likely long-term consequence for the economy's price-setting (PS) curve?

Comparative Analysis of Fiscal Policies

Productivity Effects of Fiscal Policy

In the long run, any government policy that increases taxes on firms will inevitably lead to an upward shift in the price-setting (PS) curve.

A government increases taxes and invests the revenue in public infrastructure. Arrange the following events to show the logical long-term causal chain that leads to an upward shift in the price-setting (PS) curve.

Short-Term vs. Long-Term Effects of Taxation on the Price-Setting Curve

A government enacts a new tax on businesses. Match each distinct phase or use of the resulting revenue with its most likely effect on the economy's price-setting (PS) curve.

When a government uses tax revenue to fund public goods like education and infrastructure, the resulting long-term increase in labor ________ is the primary reason the price-setting (PS) curve may shift upward.

Evaluating Fiscal Policy Proposals

A country's government significantly increases corporate taxes and dedicates all the new revenue to building a nationwide high-speed internet network. Economists predicted this investment would boost labor productivity and cause an upward shift in the price-setting (PS) curve in the long term. However, after a decade, no such upward shift is observed. Which of the following is the most direct and fundamental explanation for this outcome within the model?