Compared to a Reduction in Tax Rates, a One-Time Tax

question 3

Multiple Choice

Compared to a reduction in tax rates, a one-time tax rebate will exert

• A) a weaker impact on aggregate demand because the increase in the incentive to earn and impact on long-term income will be smaller for the temporary tax cut.
• B) a stronger impact on aggregate demand because both the increase in the incentive to earn and impact on long-term income will be larger for the temporary tax cut.
• C) an identical impact on aggregate demand because the size of the budget deficit will be the same regardless of whether the tax cut is temporary or permanent.
• D) an identical impact on  aggregate demand because the incentive effects of a tax cut will be the same regardless of whether it is temporary or permanent.

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Definitions:

Consolidate

To combine assets, liabilities, and other financial items of two or more entities into one.

Financial Data

Quantitative information pertaining to financial transactions, including earnings, expenditures, assets, liabilities, and equity.

Controlling Interest

Ownership interest in a business entity that gives the holder the power to direct or influence the direction of management and policies.

Consolidation Worksheet

An instrument utilized for creating combined financial reports that merges the finances of a parent entity with those of its subsidiary companies.