Which of the Following Statements About the Substitution Effect of an Income

question 15

Multiple Choice

Which of the following statements about the substitution effect of an income tax rate increase is false?

• A) The substitution effect is theoretically stronger for high-income taxpayers than for low-income taxpayers.
• B) The substitution effect is theoretically stronger for a family's secondary wage earner than for the family's primary wage earner.
• C) The substitution effect is theoretically stronger for self-employed individuals who control their own time than for employees whose work schedules are controlled by their employers.
• D) None of these choices are false.

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Definitions:

Prior Service Cost

The expense recognized by a pension plan for benefits earned by employees in periods prior to the implementation of the pension plan.

Projected Benefit Obligation

An actuarial calculation of the total projected benefits owed to employees in a defined benefit plan, factoring in expected future salary increases.

Pension Asset/Liability

Represents the surplus or deficit in a company's pension plan, indicating whether assets are sufficient to cover pension obligations.

Funded Status

The financial status of a pension plan, usually indicating the extent to which assets cover liabilities.