Suppose Fairness Is Defined as Those with the Highest Incomes

question 8

Multiple Choice

Suppose fairness is defined as those with the highest incomes can afford to pay a greater proportion of their income in taxes. Then which of the following taxation systems would be consistent with this notion of fairness?

• A) A true flax tax.
• B) A flat sales tax on consumption purchases.
• C) A progressive tax on income.
• D) A fixed federal tax of $5,000 that everyone pays regardless of income status.

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Definitions:

Exchange-Rate Effect

The impact of changes in the exchange rate on a country's international trade and economic activity, particularly how depreciation can increase exports and reduce imports by making domestic goods cheaper for foreigners and foreign goods more expensive for domestic consumers.

Money Market

A segment of the financial market where short-term financial instruments with high liquidity are traded.

Interest-Rate Effect

The interest-rate effect describes how changes in the price level lead to changes in interest rates and thus in the quantity of goods and services demanded.

Aggregate Demand Curve

Represents the total demand for all goods and services within a certain market at various price levels, holding all else equal.