Taxes Adversely Affect the Allocation of Resources Because

question 197

Multiple Choice

Taxes adversely affect the allocation of resources because

• A) they do not always fall more heavily on the rich than on the poor.
• B) the taxes collected are not enough to finance government spending.
• C) not everyone pays taxes.
• D) they distort prices and thus distort the decisions of households and firms.

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Definitions:

Inflation Rate

The percentage increase in the general price level of goods and services in an economy over a period of time.

Nominal Interest Rates

Nominal interest rates are the stated interest rates on financial products without adjustment for inflation.

Rate of Inflation

The Rate of Inflation is the pace at which the general level of prices for goods and services is rising, eroding purchasing power.

Real Interest Rates

The interest rate adjusted for inflation, representing the real cost of borrowing and the real yield to lenders or investors.