E2 Which of the following statements is/arecorrect?A. When taxpayers are convinced that highertaxes are necessary to quell social unrest,private spending and other public spendingare displaced and taxes may remain at theselevels after the crisis.B. According to the stages of developmentmodel the share of government in theeconomy will increase because the demandfor public goods tends to be incomeelastic.C. When the median voter's income is higherthan the average income of voters, there willbe a demand for income redistribution andpublic expenditure will increase.

Answered: A. When taxpayers are convinced that…

A. When taxpayers are convinced that higher taxes are necessary to quell social unrest, private spending and other public spending are displaced and taxes may remain at these levels after the crisis.

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter17: Taxation And Resource Allocation

Section: Chapter Questions

Problem 2DQ

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Concept explainers

Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.

Question

Which of the following statements is/are
correct?
A. When taxpayers are convinced that higher
taxes are necessary to quell social unrest,
private spending and other public spending
are displaced and taxes may remain at these
levels after the crisis.
B. According to the stages of development
model the share of government in the
economy will increase because the demand
for public goods tends to be income
elastic.
C. When the median voter's income is higher
than the average income of voters, there will
be a demand for income redistribution and
public expenditure will increase.

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