If the Tax on a Good Is Increased from $0

question 62

Multiple Choice

If the tax on a good is increased from $0.30 per unit to $0.90 per unit,the deadweight loss from the tax

• A)remains constant.
• B)increases by a factor of 4.
• C)increases by a factor of 9.
• D)increases by a factor of 16.

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Definitions:

Float Motive

The rationale for holding money in transaction accounts to satisfy daily operational cash flow needs.

Liquidity

The ease with which an asset or security can be converted into cash without affecting its market price.

Long-term Maturities

Refers to debt securities or loans with repayment periods typically exceeding one year, often associated with bonds or long-term loans.

Money Market

is a segment of the financial market where short-term financial instruments and securities are traded, offering liquidity and lower risk.