Tax Smoothing Is a Desirable Policy Because It

question 3

Multiple Choice

Tax smoothing is a desirable policy because it:

• A) reduces the distortions of incentives caused by taxes.
• B) reduces budget deficits in periods of recession.
• C) eliminates the impact of automatic stabilizers.
• D) is consistent with a balanced budget.

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Definitions:

Marginal Resource Cost

The additional cost incurred by acquiring or using one more unit of a resource.

Price Level

The average of current prices across the entire spectrum of goods and services produced in the economy, reflecting a nation's cost of living.

Nominal Wages

The amount of money paid to employees not adjusted for inflation, reflecting the current dollar value of wages.

Real Wages

Pay from employment, recalibrated for price level changes to indicate the true value of work income.