Chapter 21, Problem 4MCQ

To determine

A lump-sum tax

Answer to Problem 4MCQ

From the available options, the correct option is independent of income.

Explanation of Solution

A lump-sum tax is independent of income because this tax is based on constant value where income or revenue remains same at all levels of GDP. Therefore, this tax cannot increase or decrease as it cannot be lower or higher with the increase or decrease in income. And, it is not a type of business tax because it eliminates the burden of tax.

Therefore, options: a, b, d, and option e are incorrect.

Here, the correct option is c (independent of income).

Economics Concept Introduction

Introduction: A lump-sum tax would not increase or decrease with the change in quantity produced in the economy as it remains same at all levels of output.