Which of the Following Statements About Taxation Is True

question 32

Multiple Choice

Which of the following statements about taxation is true?

• A) A tax cut would affect aggregate demand directly.
• B) A tax cut would raise income and expenditures.
• C) Cutting taxes by $20 is the same as increasing government spending by $20.
• D) A change in taxes would not affect consumption.
• E) An increase in taxes by $50 acts to lower aggregate demand by $50.

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Definitions:

Sunk Costs

Sunk costs are past expenditures that cannot be recovered and should not affect future business decisions since they remain the same regardless of the outcome.

Cost of Goods Manufactured

The total cost incurred to manufacture products, including materials, labor, and overhead, during a specific period.

Finished Goods Inventory

Refers to products that have completed the manufacturing process but have not yet been sold.

Variable Costs

Expenses that vary in direct relation to the volume of production or sales transactions.