Figure 8-17 the Vertical Distance Between Points a and B Represents the Represents

question 4

Multiple Choice

Figure 8-17
The vertical distance between points A and B represents the original tax.

-Refer to Figure 8-17.The original tax can be represented by the vertical distance AB.Suppose the government is deciding whether to lower the tax to CD or raise it to FG.Which of the following statements is not correct?

• A) Compared to the original tax, the larger tax will increase tax revenue.
• B) Compared to the original tax, the smaller tax will decrease deadweight loss.
• C) Compared to the original tax, the smaller tax will decrease tax revenue.
• D) Compared to the original tax, the larger tax will increase deadweight loss.

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Definitions:

Pretax Accounting Income

Income earned by a business before taxation has been deducted, as recorded in its financial accounts.

Deferred Tax Liabilities

Future tax payments due to temporary differences between financial accounting and tax accounting practices.

Deferred Tax Assets

Assets on a company's balance sheet that may be used to reduce future tax liability resulting from temporary timing differences between accounting and tax treatments.