An Increase in Taxes of a Specific Amount Will Have

question 109

Multiple Choice

An increase in taxes of a specific amount will have a smaller impact on the equilibrium GDP than will a decline in government spending of the same amount because:

• A) the MPC is smaller in the private sector than it is in the public sector.
• B) declines in government spending always tend to stimulate private investment.
• C) disposable income will fall by some amount smaller than the tax increase.
• D) some of the tax increase will be paid out of income that would otherwise have been saved.

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Definitions:

Horizontal Analysis

An analytical technique in financial statement analysis where figures of line items are compared across multiple periods to identify trends and growth patterns.

Current Assets

Current Assets are all assets of a company that are expected to be sold, consumed, or converted into cash within one year or within the operating cycle of a business.

Long-Term Liabilities

Obligations expected to be paid more than one year in the future.

Retained Earnings

The portion of net income that is retained by the corporation rather than distributed to its owners as dividends.