The Romer and Romer Paper, "The Macroeconomic Effects of Tax

question 195

Multiple Choice

The Romer and Romer paper, "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," found that tax changes that are made to promote long-run growth
Or to reduce an inherited budget deficit tend to result in

• A) a strong positive relationship between taxes and output GDP.
• B) a weak positive relationship between taxes and output GDP.
• C) an uncertain correlation between taxes and output GDP.
• D) a strong negative relationship between taxes and output GDP.

---

Definitions:

Shareholder Wealth

Shareholder wealth is the total value of an investment in a company, often measured by the market value of the shareholder's equity, which includes stock price appreciation and dividends.

Payback Period

The length of time required to recover the initial cost of an investment, highlighting the investment's risk and liquidity.

Modified Internal Rate

A version of the Internal Rate of Return (IRR) calculation that adjusts for changes in cash flows over the project's life, offering a more nuanced evaluation of profitability.

Discounting Approach

A financial strategy that determines the present value of future cash flows by applying a discount rate.