The authors of the text suggest that a comprehensive personal income tax with few loopholes would be efficient and equitable. What is their reasoning for this statement?
What will be an ideal response?
They argue that a personal income tax with few loopholes would be efficient because it would result in little or no change in economic behavior. Labor supply is largely unresponsive to a change in income taxes; therefore, the tax would result in little or no change in the amount of work.The tax would be equitable on the grounds of vertical equity. With few loopholes, one can be sure that higher income persons would pay the same fraction of income that low-income persons would.
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An increase in the interest rate causes investment to
a. rise and the exchange rate to appreciate. b. fall and the exchange rate to depreciate. c. rise and the exchange rate to depreciate. d. fall and the exchange rate to appreciate.
Based on the classical view,
A. All goods produced are always purchased at an unchanging price. B. Unemployment never occurs. C. Cyclical unemployment might occur temporarily. D. Persistent unemployment might be a problem.
Suppose that U.S. prices rise 4 percent over the next year while prices in Mexico rise 6 percent. According to the purchasing power parity theory of exchange rates, which of the following should happen?
A. The dollar will be worth 1.5 pesos in the foreign exchange market. B. The peso will be worth 1.5 dollars in the foreign exchange market. C. The dollar will depreciate. D. The peso will depreciate.
One thing oligopolists must do in order to determine their optimal strategy is
A. ignore the reaction of their rivals to their strategy. B. ignore the reaction of their customers to their strategy. C. anticipate the reaction of their rivals to their strategy. D. anticipate the reaction of government to their strategy.