Which Statement Is TRUE Regarding the Possible Effects of a Tax

question 193

Multiple Choice

Which statement is TRUE regarding the possible effects of a tax change?

• A) Lower taxes on household income reduce aggregate supply.
• B) Higher tax rates on business profits encourage firms to boost production.
• C) Higher marginal tax rates tend to depress economic activity.
• D) Higher taxes on household income have no effect on the amount of labor households wish to supply.

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Definitions:

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, reflecting the product's sensitivity to price changes.

Supply Curve

The supply curve is a graphical representation showing the relationship between the price of a good and the quantity of the good that suppliers are willing to sell.

Price Elasticity

A gauge of how sensitively the demand or supply for a product reacts to alterations in its price.

Midpoint Method

A technique used to calculate the percentage change in a variable by dividing the change by the average value of the initial and final values.