Suppose the Government Implements a Permanent Reduction in the Net

question 77

Multiple Choice

Suppose the government implements a permanent reduction in the net tax rate in an effort to increase real GDP.One disadvantage of this policy is that

• A)the effect of economic shocks on government revenues becomes more volatile,while the economy becomes more stable.
• B)further reductions in the net tax rate will be required to maintain the effectiveness of the tax rate as an automatic stabilizer.
• C)the level of private investment increases,which will destabilize the level of real GDP.
• D)the effect of the automatic stabilizer is reduced and the economy will be more unstable.
• E)the level of private investment decreases,which opens up a recessionary gap.

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Definitions:

Current Liability

A company's debts or obligations that are due to be paid to creditors within one year.

Shortage Costs

Expenses incurred from not having enough inventory on hand, including lost sales, backorder processing, and dissatisfied customers.

Carrying Costs

Expenses associated with holding or storing inventory, including insurance, storage, depreciation, and opportunity costs.

Seasonal Increases

Periodic rises in business activity or demand that occur at the same time each year due to changes in season.