As a General Rule, When an Income Tax Is Added

question 95

Multiple Choice

As a general rule, when an income tax is added to the basic macroeconomic model, what happens to the consumption schedule?

• A)It will shift downward.
• B)It will shift upward.
• C)It will become flatter.
• D)It will become steeper.

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Definitions:

Budget Constraints

Refers to the limitations on the consumption choices of individuals or entities due to their available resources, such as income or wealth.

Indifference Curves

Graphical representations showing combinations of two goods that give the consumer equal satisfaction and utility.

Optimum

The most favorable condition or level of something, where benefits are maximized and negative effects are minimized.

Normal Goods

Normal goods are goods for which demand increases as the income of consumers increases, showing a positive relationship between income and demand.