One Argument in Favor of Tax Cuts Over Spending-Based Fiscal

question 26

Multiple Choice

One argument in favor of tax cuts over spending-based fiscal stimulus is that:

• A) tax cuts increase the MPC by a larger amount than government spending.
• B) tax cuts temporarily increase planned spending, but government spending permanently increases private spending.
• C) in theory the tax multiplier is larger than the government spending multiplier.
• D) historically tax cuts have been more successful than spending-based fiscal stimulus.

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Definitions:

Variable Manufacturing Costs

These are costs that vary directly with the level of production output, including expenses like raw materials and variable labor costs.

Fixed Manufacturing Overhead

Costs that do not vary with the level of production output and include expenses such as rent, property taxes, and salaries for permanent staff.

Selling Price

The amount a buyer pays to acquire a product or service from a seller.

Net Income

The amount of earnings remaining after all operational, interest, and tax expenses have been deducted from total revenue, reflecting the financial health of a company.