A Reduction in the Net Tax Rate Might Lead to an Increase

question 7

Multiple Choice

A reduction in the net tax rate might lead to an increase in the growth rate of potential output if

• A)households are not forward looking.
• B)the tax cuts stimulate private investment.
• C)firms are operating at their normal capacity.
• D)the marginal propensity to consume is large.
• E)the simple multiplier is large.

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Definitions:

Public Debt

The total amount of money that a government owes to creditors, which can include domestic or foreign individuals, institutions, or other governments.

Labour Legislation

Laws and regulations governing employment standards, worker's rights, and employer responsibilities in the workplace.

Tax Incentives

Financial reductions or exemptions offered by governments to encourage certain economic activities or investments.

Scenario Planning

A strategic planning method that uses scenarios to anticipate possible future events and to develop strategies to address them effectively.