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:

Revealed Preference

An economic theory stating that the preferences of consumers can be understood by their purchasing habits.

Prices

The monetary value assigned to goods and services in a market, dictating the exchange rate at which these can be traded.

Laspeyres Price Index

An index that measures the relative change in the price level of a fixed basket of goods and services over time, using the quantities purchased in the base period.

Paasche Price Index

An economic measure that calculates the change in the cost of acquiring a given basket of goods and services in the current year compared to a base year, using the current year's prices.