Answer:
No option is correct.
- a. An increase in the tax rate always increases tax revenue. ⇒ FALSE, if tax rates increase beyond the optimal level, instead of increasing total revenue they will decrease it.
- b. The tax rate is 1 percent, and tax revenue is very high. ⇒ FALSE, very low tax rates will result in very low government revenue.
- c. The tax rate is 99 percent, and tax revenue is very high. ⇒ FALSE, very high tax rates will result in very low government revenue.
- d. A decrease in the tax rate always increases tax revenue. ⇒ FALSE, if tax rates decrease beyond the optimal level, instead of increasing total revenue they will decrease it.
Explanation:
According to Arthur Laffer, a direct and sometimes inverse relationship exists between tax rates and government revenue. Sometimes a lower tax rate can result in higher government revenue. But that is not always the case. Sometimes an increase in the tax rate can increase government revenue. The optimal tax rate (T*) is equal to the tax rate that will allow the government to collect the highest amount of revenue. Any lower or higher tax rate will decrease government revenue.
Answer:
The answer is D.
Explanation:
An increase in the market rate of interest of a bond will decrease the market price of the bond. Market rate of interest of a bond is inversely related to the market price of the bond.
For example, A bonds is issued with a higher interest rate, the price of existing bonds will fall because the demand for this bond falls.
Answer:
A. Substitution bias and the introduction of new goods.
Explanation:
The Consumer price index is a measure of the overall cost of goods and services (usually measured in fixed basket), purchased by a consumer in a year as compared to previous years. It gives the government and economists an idea of the cost of living of individuals in a nation. Some problems of the CPI include
1. Substitution Bias: The CPI assumes that prices of goods and services change in a fixed way as the years go by. It also does not consider the fact that sometimes some customers have preference for expensive items compare with the less expensive items. This is reflected in the OPEC case where it is automatically assumed that customers would prefer the cheaper hydrogen-powered engines to the gasoline engines.
2. Introduction of New goods: The CPI fails to recognize that new goods would enter a market because the CPI assumes a fixed basket of items and products. The introduction of new goods would affect comparisons to previous years' CPIs. The new good invented in the above case is the hydrogen-powered engine.
Answer:
D. Interest rate effect
Explanation:
Interest Rate Effect can be defined as the rate that occur due to the change in borrowing and spending attitude of a person after the interest rate might have been adjusted because in a situation where the interest rates rises it will enable both businesses and consumers to cut back on their spending the result of which will cause earnings to fall and stock prices to drop due to the fact that as the interest rates move up, the cost of borrowing becomes more expensive which is why interest rates that are high tend to always reduce inflationary pressures and cause an appreciation in the exchange rate
Answer:
Year 1
Incremental earnings = EBIT * ( 1 - Tax)
EBIT = Revenue - Operating expense - Depreciation
= 121.6 - 37.7 - 26.6
= $57.3 million
Incremental earnings = 57.3 * ( 1 - 35%)
= $37.245 million
Year 2
EBIT = 169.3 - 50.4 - 28.2
= $90.7 million
Incremetal earnings = 90.7 * (1 - 35%)
= $58.955 million