A Major Problem with Using the Egalitarian Principle to Distribute

question 119

Multiple Choice

A major problem with using the egalitarian principle to distribute income is that

• A) it would eliminate the incentives that rewards provide in an economic system.
• B) it is difficult to know when an equal distribution of income has been achieved.
• C) it would not be fair to the wealthy.
• D) there exist no mechanisms to carry out such a scheme.

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Definitions:

Capital Budgeting Technique

A process of evaluating and comparing the potential expenditures or investments which are significant in amount, to determine their worthiness for funding.

Present Valued Dollar

The current value of a future sum of money or stream of cash flows given a specified rate of return.

Internal Rate of Return

A financial metric used to evaluate the profitability of potential investments, calculated as the rate of return that makes the net present value of all cash flows from a particular project equal to zero.

Reinvestment Assumption

The premise in finance that cash flows received from an investment will be reinvested at a certain rate, affecting future cash flows and the overall return.