On What Basis Is a Tax on Expensive Speed Boats

question 4

Multiple Choice

On what basis is a tax on expensive speed boats that are purchased only by the wealthy NOT likely to satisfy the condition of vertical equity

• A)Wealthy buyers are most likely to be subject to the implications of the flypaper theory of tax incidence.
• B)Horizontal equity is most associated with a tax on luxury items.
• C)Buyers can easily substitute other luxuries for expensive speedboats.
• D)It is very unlikely that the burden of the tax will fall on workers who make the expensive speed boats.

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Definitions:

Inflationary Premium

The additional interest rate or return that lenders demand to compensate for the decrease in purchasing power of money due to inflation.

Money Rate

It usually refers to the interest rate, which is the cost of borrowing money, often set by central banks to influence economic activity.

Real Rate

The interest rate adjusted for inflation, representing the true cost of borrowing or the true return on investment.

Inflationary Premium

The part of the nominal interest rate that represents compensation to the lender for the expected loss of purchasing power due to inflation.