If a new tax policy raises the tax rate 2 percent but causes the output supplied

Question

If a new tax policy raises the tax rate 2 percent but causes the output supplied to fail by 20 percent, the absolute value of the tax elasticity of supply is: 0.2. 4.0. 40.0. 10.0. According to the extreme monetarist position and the equation of exchange, the issuance of new money will cause: Higher velocity. Higher real output. Higher price level. Lower velocity. According to supply-side economists, what impact do FDA standards have? They reduce costs and shift AS to the left. They reduce costs and shift AS to the right. They increase costs and shift AS to the left. They increase costs and shift AS to the right. The price paid for the use of money is the: Portfolio decision. Interest rate. Yield. Reserve ratio. The Phillips curve trade-off between unemployment and inflation is the result of an aggregate supply curve that is: Horizontal. Vertical. Upward sloping. Downward sloping.

Explanation / Answer

Q18. Tax elasticity of supply is calculated as follows -

Tax elasticity of supply = Percentage change in output or quantity supplied/Percentage change in tax rate

Percentage change in output or quantity supplied = 20%

Percentage change in tax rate = 2%

Tax elasticity of supply = Percentage change in output or quantity supplied/Percentage change in tax rate

Tax elasticity of supply = 20/2 = 10

The Tax elasticity of supply is 10.

Hence, the correct answer is option (D).

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