Why Do Taxes Create Deadweight Losses

question 55

Multiple Choice

Why do taxes create deadweight losses

• A)They reduce profits of firms.
• B)They distort incentives.
• C)They cause prices to rise.
• D)They create revenue for the government.

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Definitions:

Thrift Institutions

Financial organizations focused on savings and mortgage lending, including savings and loan associations, credit unions, and savings banks.

Commercial Banks

Financial institutions that offer a wide range of services including deposit accounts, loans, and other financial products to businesses and consumers.

Contractionary Monetary Policy

To fight inflation, the Federal Reserve decreases the money supply.

Balance of Trade

This is the difference between the value of a country's exports and the value of its imports over a certain period, reflecting a trade surplus or deficit.