A Change in the Interest Rate

question 45

Multiple Choice

A change in the interest rate:

• A) has a smaller impact on the present value of a payment to be made far into the future than on one to be made sooner.
• B) will not make a difference in the present values of two equal payments to be made at different times.
• C) has a larger impact on the present value of a payment to be made far into the future than on one to be made sooner.
• D) has a larger impact on the present value of a bigger payment to be made far into the future than on one of lesser value.

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Definitions:

Ability-to-Pay Principle

A principle in taxation that states taxes should be levied according to a taxpayer's ability to pay, typically implying higher taxes for those with higher income.

Tax Burdens

The total amount of tax payments borne by individuals or organizations, often discussed in terms of its impact on economic behavior or well-being.

Taxation Theory

Taxation Theory explores the underlying principles and effects of taxes on the economy, including how taxes impact consumer behavior, efficiency, and income distribution.

Vertical Equity

A principle of taxation that states taxpayers with a greater ability to pay taxes should contribute a larger amount.