Does a state sales tax function as a progressive, regressive, or proportional source of revenue, and why?
What will be an ideal response?
A regressive tax system is one in which tax rates fall as incomes rise. A state sales tax is typically a fixed percentage of certain purchases, but individuals with lower incomes spend a larger portion of their income on items that are sales taxed. As incomes rise, a smaller portion of income is spent on these items, and therefore a lower percentage is allocated to sales tax. As a result, a state sales tax functions as a regressive tax.
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In order for a central planner to achieve the invisible-hand type efficiency of a free market, the planner would
a. need masses of statistics. b. be required to makes enormous calculations. c. need to be able to measure a consumer's marginal utility in order to equate MU with MC. d. All of the above would be required.
Other things constant, if the Fed decreased the discount rate,
a. the earnings of the Fed would increase. b. the incentive of commercial banks to borrow from the Fed would be reduced. c. the prime interest rate would automatically decline. d. commercial banks probably would reduce their excess reserves and be more willing to extend additional loans.