The Optimal Tax Is Difficult to Determine Because Although Revenues

question 170

True/False

The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases, deadweight loss continues to increase.

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Definitions:

Interest Rate Futures

Financial futures contracts that obligate the buyer to purchase an asset (like Treasury bills) with a fixed interest rate at a future date.

Federal Funds

Short-term funds transferred between financial institutions, typically overnight, at an interest rate set by the Federal Reserve in the United States.

Repurchase Agreements

Short-term borrowing for dealers in government securities, where the dealer sells the government securities to investors, usually on an overnight basis, with an agreement to buy them back.

Counterparty

The other organization or party involved in a financial transaction, opposite to the primary party initiating the transaction.