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:

Efficient

Pertaining to a process or system that achieves maximum productivity with minimal wasted effort or expense.

Economy

Represents the system of production, distribution, and consumption of goods and services within a specific region or country.

Efficiency

Efficiency in economics means the optimal allocation of scarce resources to meet the desired objectives, minimizing waste and maximizing value.

Economy

A broad term that encompasses all activities related to the production, consumption, and trade of goods and services in an area or country.