If Taxes Depend on Income and the MPC Is 0

question 2

Multiple Choice

If taxes depend on income and the MPC is 0.8 and t is 0.4, the tax multiplier is

• A) -1.54.
• B) -1.92.
• C) -2.5.
• D) -2.7.

---

Definitions:

Weak-form Efficient

A level of market efficiency that assumes all past trading information is already reflected in stock prices, thus negating the ability to gain higher returns through analysis of historical prices.

Survivorship Bias

Survivorship bias is the logical error of concentrating on the entities or people that made it past some selection process and overlooking those that did not, often leading to false conclusions.

Data Mining

The process of using statistical techniques to extract and identify patterns, relationships, or information from large datasets.

Active Portfolio Management

The strategy of making buy and sell decisions of investment portfolio holdings, aiming to outperform certain benchmarks.