Answer the Question on the Basis of the Following Before-Tax

question 92

Multiple Choice

Answer the question on the basis of the following before-tax consumption schedule for a closed economy: $$\begin{array}{l}\text { Gross Domestic }\\\begin{array} { c c c } \underline{\text { Product (GDP) }} &\underline{ \text { Consumption (C) } } \\0 & \$ 40 \\100 & 120 \\200 & 200 \\300 & 280 \\400 & 360\end{array}\end{array}$$ Refer to the data.If a lump-sum tax (the same tax amount at each level of GDP) of $40 is now imposed in this economy,the consumption schedule will be:

• A)
• \(\begin{array} { l }
• \underline { \text { GDP } } &\underline{\text { C }} \\
• \$0&\$8\\
• 100&88 \\
• 200&168 \\
• 300 & 248\\
• 400&320 \\
• \end{array}\)
• B)
• \(\begin{array} { l }
• \underline { \text { GDP } } &\underline{\text { C }} \\
• \$0&\$0\\
• 100&88 \\
• 200&168 \\
• 300 & 240\\
• 400&320 \\
• \end{array}\)
• C)
• \(\begin{array} { l }
• \underline { \text { GDP } } &\underline{\text { C }} \\
• \$0&\$10\\
• 100&90 \\
• 200&170 \\
• 300 & 250\\
• 400&310 \\
• \end{array}\)
• D)
• \(\begin{array} { l }
• \underline { \text { GDP } } &\underline{\text { C }} \\
• \$0&\$0\\
• 100&60 \\
• 200&120 \\
• 300 &180\\
• 400&240\\
• \end{array}\)

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Definitions:

Annually Compounded

Interest on an investment or loan calculated once a year and added to the principal sum for calculating future interest.

Quarterly Payment

Payments made every three months in a year, often used for loans, subscriptions, or service contracts.

Preferred Share

A class of ownership in a corporation that has a higher claim on its assets and earnings than common shares, typically with fixed dividends.

Compounded

The process where the value of an investment increases due to the interest earned on both the principal and the accumulated interest.