-In the Above Figure, to Achieve Efficiency, the Government Should

question 33

Multiple Choice

-In the above figure, to achieve efficiency, the government should

• A) impose a tax of $2 per unit.
• B) impose a tax of $3 per unit.
• C) offer a subsidy of $2 per unit.
• D) offer a subsidy of $3 per unit.

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Definitions:

Real Rate

is the interest rate adjusted for inflation, reflecting the true cost of borrowing or real yield on an investment.

Interest Rate Risk

The potential for investment value fluctuations due to changes in the prevailing interest rates.

Maturity

The specified time at which the principal amount of a bond, loan, or other financial instrument is due to be paid in full.

Coupon Bond

A type of bond that pays the holder a fixed interest rate (coupon) over the bond's lifespan and repays the principal at maturity.