Suppose the Banking Industry Were to Fail,leaving the Federal Government

question 47

Multiple Choice

Suppose the banking industry were to fail,leaving the federal government (through its deposit guarantee programs) to pay for trillions of dollars in losses: they do so by imposing a tax of 50% on all individuals' wealth.What happens to current employment and the real wage rate?

• A)Both employment and the real wage rate would increase.
• B)Both employment and the real wage rate would decrease.
• C)Employment would increase and the real wage would decrease.
• D)Employment would decrease and the real wage would increase.

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Definitions:

Tax Base

The measure or value, such as income or property value, that determines how much tax an individual pays.

Taxation

The process whereby authorities impose financial charges on citizens or corporations to fund government spending and public expenditures.

Progressive

In the context of tax policy, a tax system where the tax rate increases as the taxable amount increases, leading to a more significant tax burden on higher-income individuals.

Federal Government

A system of government where power is divided between a central national government and various regional governments.