Question: Suppose there is a temporary decline in the tax rate that households pay on their labor income. Analyze the effect of this shock in the

Suppose there is a temporary decline in the tax rate that households pay on their labor income. Analyze the effect of this shock in the labor market diagram of a standard DSGE model (with no sticky prices or wages).
(a) What happens to the labor demand schedule?
(b) What happens to the labor supply schedule?
(c) What is the effect on the real wage and employment in the short run?

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