A Tax Collects $3, 000 Per Year from a Family

question 31

Multiple Choice

A tax collects $3, 000 per year from a family with an income of $25, 000 and takes $4, 000 per year from a family with an income of $50, 000.This tax plan is

• A)regressive
• B)proportional
• C)progressive
• D)based on the ability-to-pay principle
• E)impossible to determine with the information provided

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Definitions:

On-The-Run Bonds

The most recent issue of a government bond, usually more liquid and yielding slightly less interest compared to older ('off-the-run') bonds.

Nearly Identical Duration

A characteristic of two or more financial instruments whose cash-flows occur over a similar time frame, making their sensitivity to interest rate changes similar.

Hedge Fund Fee Structure

The compensation arrangement between hedge funds and their managers, typically involving a management fee plus a performance fee based on the fund's returns.

Management Fee

A charge levied by an investment manager for managing an investment fund's portfolio of securities.