How Is an Increase in Taxes Likely to Affect a fiRm's

question 61

Multiple Choice

How is an increase in taxes likely to affect a firm's profitability?

• A) A higher tax rate will lead to lower revenues and profits.
• B) An increase in the tax rate will increase the demand for the firm's products.
• C) A higher tax rate increases costs and lowers profits.
• D) With a higher tax rate, the market price of the good is likely to fall.

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Definitions:

Aggregate Supply

The total supply of goods and services that firms in an economy plan on selling during a specific time period, at given price levels.

Natural Rate

The long-term unemployment rate around which the labor market is in equilibrium, unaffected by short-term fluctuations.

Unemployment

The condition of being without a job while actively looking for employment and being willing to work.

Potential GDP

An estimate of the maximum output an economy can produce when it is most efficiently utilizing all available resources.