A Tax Change Is a Determinant of the Size of the Shift

question 12

Multiple Choice

A tax change is a determinant of the size of the shift in the aggregate demand curve. The shift in aggregate demand curve will be affected by

• A) households' perceptions about whether the tax change is on income or on goods.
• B) households' perceptions about whether the tax change is local or national.
• C) households' perceptions about whether the tax change is good or bad.
• D) households' perceptions about whether the tax change is permanent or temporary.

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Definitions:

Depreciation Tax Shield

A reduction in taxable income for a business, resulting from the depreciation expense claimed on tangible assets.

Tax Rate

The percentage of income or value that is collected by the government as tax.

MACRS Depreciation

A method of depreciation in the U.S. that allows for a faster write-off of assets under the tax code.

Incremental Annual Cash Flow

The additional cash flow generated by a company from taking on a new project, calculated as the difference between the project's cash inflows and outflows.