Which Statement Is the Best Definition of a Progressive Tax

question 45

Multiple Choice

Which statement is the best definition of a progressive tax system over a business cycle?  

• A) A constant fraction of income is taxed throughout the business cycle, i.e., as the economy experiences considerable fluctuation. 
• B) A larger fraction of income is taxed in expansions than in contractions. 
• C) A smaller fraction of income is taxed in expansions than in contractions. 
• D) There is a decreasing amount of income in both expansions and contractions.

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Definitions:

Sales Forecast

An estimation of the sales a company expects to achieve over a certain period in the future.

Additional Funds Needed (AFN)

Those funds required from external sources to increase the firm’s assets to support a sales increase. A sales increase will normally require an increase in assets. However, some of this increase is usually offset by a spontaneous increase in liabilities as well as by earnings retained in the firm. Those funds that are required but not generated internally must be obtained from external sources.

Pro Forma Financial Statements

Financial documents that project a company's future financial performance based on certain assumptions.

Capital Intensity Ratios

Ratios that measure the extent to which a company is deploying its assets in its business operations.