The Effect of a Decline in Taxes on the Level

question 86

Multiple Choice

The effect of a decline in taxes on the level of income will differ somewhat from an increase in government expenditures of the same amount because:

• A) Tax declines tend to be more expansionary
• B) Households may not spend all of an increase in disposable income
• C) The MPC which applies to the incomes of households always exceeds the MPC which applies to business incomes
• D) The multiplier is high when the MPS is low

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Definitions:

Overhead Cost

General, administrative, and selling expenses that are not directly tied to any specific product or service but are necessary for running the business.

Allocation Base

A measure or statistic that is used to distribute costs among different departments, projects, or products.

Overhead

Refers to the ongoing business expenses not directly tied to creating a product or service, including rent, utilities, and administrative costs.

Departmental Overhead Rate Method

The departmental overhead rate method is a way of allocating indirect costs to products or services based on the overhead rates of specific departments within an organization, rather than using a single company-wide rate.