Frequent question: Which of the following is a correct statement of the effects of a lump sum tax?

What does lump-sum tax affect?

Contrasts with a per unit tax, which is levied on every unit of output produced, thus increases in size as output increases. … A lump sum tax increases firms’ average fixed cost, and thus average total cost, but has no effect on marginal cost or average variable cost.

How does lump-sum tax affect GDP?

With everyone at the same income level, a lump-sum tax is fair. It raises GDP. … Less time away from work leads to higher GDP as more hours at work make it possible to produce more.

What does it mean for a tax to be lump-sum?

A lump-sum tax is a special way of taxation, based on a fixed amount, rather than on the real circumstance of the taxed entity. In contrast with a per unit tax, lump-sum tax does not increase in size as the output increases.

What is the effect of the public sector on equilibrium GDP?

equal increases in government spending and taxes increase the equilibrium GDP.

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What is the difference between per unit tax and lump sum tax?

A tax levied on producers for every unit produced. In contrast to a lump sum tax, which is a one time payment from producers to the government. A per unit tax increases firm’s marginal cost and average variable cost (thus, also the average total cost), but does not affect fixed costs.

What is the lump sum principle?

In economics, the lump sum principle states that a tax on a person’s general purchasing power is more efficient than a tax on specific goods. … Keeping the section of Lump sum would be something like making Firefly a section of Fire on grounds that they sound similar and have a resemblance in giving off light.

Does tax increase GDP?

A percentage-point cut in the average income tax rate raises GDP by 0.78 percent. The effects of consumption tax cuts are comparatively smaller and did not produce statistically significant effects, but the paper finds that switching from an income to a consumption tax base has positive effects on growth.

What is a lump-sum tax example?

Lump-Sum Tax



A tax in which the taxpayer is assessed the same amount regardless of circumstance. An example of a lump-sum tax is a $55 fee on all employees who work in a township. Another example is tag fees on vehicles, which are the same regardless of the income of vehicle owners.

Why is a lump-sum tax efficient?

Lump-sum taxes have a central role in the theory of taxation due to their efficiency in raising revenue and achieving distributional objectives. … The imposition of lump-sum taxes therefore causes no deadweight loss.

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What is the tax rate on a lump-sum payment?

Mandatory Withholding



Mandatory income tax withholding of 20% applies to most taxable distributions paid directly to you in a lump sum from employer retirement plans even if you plan to roll over the taxable amount within 60 days.

What will increase GDP by the largest amount?

Consumers spend money to acquire goods and services, such as groceries and haircuts. Consumer spending is the biggest component of GDP, accounting for more than two-thirds of the U.S. GDP.1 Consumer confidence, therefore, has a very significant bearing on economic growth.

Is it true that equal increases in government spending and taxes do not change the equilibrium GDP?

The correct option is d. lead to an increase in the equilibrium level of real GDP output that is larger than the initial change in government spending and taxes. If there is an equal increase in spending and taxes, the equilibrium real GDP increases.

Which of the following is a final good or service?

The correct answer is: D.



A final good or service is a good or service whose final user is the consumer. Final goods or services are mainly used to satisfy a human want or need. An intermediate good or service, on the other hand, is a good or service that is used in the production of other goods or services.

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