Which of the Following Is True of Taxation as a Tool

question 35

Multiple Choice

Which of the following is true of taxation as a tool of fiscal policy?

• A) Compared to government expenditure, tax cuts are less effective at increasing total expenditure.
• B) When the marginal propensity to save is high, tax cuts are highly effective in increasing
• C) Tax cuts create an immediate change in consumers' income and consumption.
• D) Compared to government expenditure, tax cuts have a longer time lag.

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Definitions:

Least-Cost Combination

is an economic principle where firms aim to produce a given output at the minimum possible cost by choosing the optimal combination of inputs.

Purely Competitive Conditions

Purely competitive conditions describe a market situation where numerous small firms compete against each other, selling homogeneous products, with no single firm able to influence market prices.

MU

MU typically stands for Marginal Utility, which is the additional satisfaction or utility that a consumer receives from consuming one more unit of a good or service.

Marginal Product

The additional output produced as a result of using one more unit of a variable input, like labor or capital.