Suppose the Government Implements a Permanent Reduction in the Net

question 128

Multiple Choice

Suppose the government implements a permanent reduction in the net tax rate in an effort to increase real GDP.One disadvantage of this policy is that

• A)the effect of economic shocks on government revenues becomes more volatile,while the economy becomes more stable.
• B)further reductions in the net tax rate will be required to maintain the effectiveness of the tax rate as an automatic stabilizer.
• C)private investment is crowded out,which may reduce the future growth rate of potential output.
• D)the effect of the automatic stabilizer is reduced and the economy will be more unstable.
• E)both C and D are correct.

Apply the concept of financial leverage to understand its impact on earnings and cost of equity.

Understand the relationship between earnings before interest and taxes (EBIT) and the firm's financial performance.

Calculate and interpret the firm’s unlevered cost of capital.

Assess the impact of financial restructuring on earnings per share and firm value.

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Definitions:

Mode Selection

The process of choosing the most appropriate method of transportation for goods based on factors such as cost, time, and product type.

Demurrage Charges

Fees charged for exceeding the allotted time for loading or unloading cargo at a port or facility.

Delivery Scheduling

The process of planning and organizing the transport of goods to ensure they reach their destination on time.

Integrated Carriers

Transportation and logistic service providers that offer a combination of shipping methods, such as air, road, and sea, to streamline the supply chain.