A Dynamic Forecast of the Incremental Revenue from a Tax

question 16

Multiple Choice

A dynamic forecast of the incremental revenue from a tax rate increase presumes that:

• A) Taxpayers will not change their behavior because of the rate increase.
• B) The tax base will increase by the same proportion as the rate increase.
• C) The tax base will decrease by the same proportion as the rate increase.
• D) The tax rate and the tax base are correlated.

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Definitions:

Treasury Stock

Shares that were issued and subsequently reacquired by the issuing corporation, reducing the amount of outstanding stock on the market.

Common Stock

A type of equity security that represents ownership in a corporation, giving shareholders voting rights and a share in profits.

Retained Earnings

The portion of a company's profits that is held back and not distributed to shareholders, reinvested in the business.

Net Income

The net income a company earns once all costs and taxes are subtracted from its total revenues.