Falling unemployment increases labor market tightness and economic output

Steps:

• Falling unemployment means more people are employed and earning income.
• Higher employment leads to increased consumer spending and economic growth.
• Government revenue rises from taxes on higher incomes and economic activity.
• Income tax revenue specifically increases as more workers enter the tax base.

Why D is correct:

• Income tax revenue rises because more employed individuals contribute through personal income taxes, per basic fiscal policy where taxable income expands with employment.

Why the others are wrong:

• A: Falling unemployment creates upward pressure on wages due to labor shortages, not downward.
• B: Fewer unemployed people means lower welfare payments, not an increase.
• C: More jobs reduce absolute poverty by providing income to the previously unemployed.

Final answer: D