If Political Officials Want to Minimize the Excess Burden Accompanying

question 199

Multiple Choice

If political officials want to minimize the excess burden accompanying a tax, they should set the tax at a rate

• A) that will maximize the revenue derived from the tax.
• B) slightly above the rate that will maximize the revenue derived from the tax.
• C) well below the rate that will maximize the revenue derived from the tax.
• D) that is the highest that could possibly be imposed.

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Definitions:

Excess Reserves

The amount of reserves that a bank holds in excess of the minimum reserve requirements set by central banking authorities.

Required Reserves

The minimum amount of funds that a bank must hold in reserve against deposits, as mandated by a central banking authority.

U.S. Government Securities

Financial instruments issued by the United States Department of the Treasury to finance government spending as an alternative to taxation.

Federal Reserve

The central banking system of the United States, responsible for implementing the country's monetary policy and regulating its financial institutions.