The Existence of Financing Constraints Makes Investment

question 21

Multiple Choice

The existence of financing constraints makes investment:

• A) more sensitive to current conditions.
• B) less sensitive to current conditions.
• C) spending follow a random walk.
• D) spending increase during recessions.

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Definitions:

Saving Rate

The proportion of disposable income that is saved rather than spent by households.

Tax Base

The total amount of assets or income that can be taxed by a governing authority, forming the essential revenue source.

Progressive Income Tax

A tax system where the tax rate increases as the taxable amount increases, placing a higher tax burden on high-income earners.

Ability-to-Pay Principle

A tax principle suggesting that taxes should be levied according to an individual or entity's capacity to pay, generally implying that those with higher incomes should pay more tax.