DOWNLOAD THE Test Bank for Principles of Taxation for Business and Invest
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z z z z
PrincipleszofzTaxzforzBuszandzInvestzPlanz2018zEdz,z21ez(Jones)zC
hapterz2z PolicyzStandardszforzazGoodzTax
1) Aztaxzmeetszthezstandardzofzsufficiencyzifzitziszeasyzforzpeopleztozpayztheztax.
2) Thezfederalzgovernmentzisznotzrequiredztozpayzinterestzonztheznationalzdebt.
3) Azstaticzforecastzofzthezrevenuezeffectzofzaztaxzratezchangezassumeszthatztheztaxzbasezdoesznotzch
ange.
4) Azdynamiczforecastzofzthezrevenuezeffectzofzaztaxzratezchangezassumeszthatztheztaxzbasezdoeszno
tzchange.
5) ThezfederalzSocialzSecurityztaxzburdenzonzemployeeszhasznotzincreasedzsincez1990zbecausezthezta
xzratezhasznotzincreasedzsincezthatzyear.
6) IfzStatezHzincreaseszitszsalesztaxzratezbyz1%,zitszsalesztaxzrevenuezmustzalsozincreasezbyz1%.
7) ThezcityzofzBernezrecentlyzenactedzaz10%ztaxzonzthezpricezofzazsubwayzticket.zConsequently,zM
rs.zLaneznowzwalksztozworkzinsteadzofztakingzthezsubway.zHerzbehaviorzillustrateszthezsubstitutio
nzeffectzofzaztaxzincrease.
8) JurisdictionzPzrecentlyzincreasedzitszincomeztaxzrate.zAztaxpayerzwhozreactsztozthezincreasezbyzw
orkingzharderztozearnzmorezincomeziszdemonstratingzthezincomezeffectzofzthezratezincrease.
9) Accordingztozsupply-sidezeconomicztheory,zazdecreasezinztaxzrateszforzhigh-
incomezindividualszcouldzactuallyzcausezanzincreasezinztaxzrevenue.
10) Supply-
sidezeconomicztheoryzholdszthatzpeoplezwhozbenefitzfromzaztaxzratezreductionzwillzspendztheirzta
xzwindfallzonzconsumptionzgoods.
11) Statezuseztaxeszarezmorezconvenientzforzindividualzconsumerszthanzstatezsalesztaxes.
12) ThezInternalzRevenuezService'szcostzofzcollectingz$100zofztaxzrevenueziszaboutz$3.
13) Azconvenientztaxzhaszlowzcompliancezcostszforztaxpayerszandzlowzcollectionzandzenforcementzc
ostszforzthezgovernment.
14) Accordingztozthezclassicalzconceptzofzefficiency,zanzefficientztaxzshouldzbezneutralzinzitszef
fectzonzfreezmarketzallocationszofzeconomiczresources.
15) AccordingztozthezKeynesianzconceptzofzefficiency,zanzefficientztaxzshouldzbezneutralzinzitszef
fectzonzfreezmarketzallocationszofzeconomiczresources.
16) Aztaxzmeetszthezstandardzofzefficiencyzifzitzgenerateszenoughzrevenueztozpayzforzthezpubliczgo
odszandzserviceszprovidedzbyzthezgovernment.
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17) Azprovisionzinztheztaxzlawzdesignedztozencouragezazspecificzeconomiczbehaviorziszaztaxzpr
eference.
18) Aztaxzshouldzresultzinzeitherzhorizontalzorzverticalzequityzacrossztaxpayers.
19) Changeszinztheztaxzlawzintendedztozmakezthezmeasurementzofztaxablezincomezmorezprecisezus
uallyzmakeztheztaxzlawzlesszcomplex.
20) Verticalzequityzfocuseszonzmeasurementzofztheztaxzbase,zandzhorizontalzequityzfocuseszonzthezta
xzratezstructure.
21) Taxzsystemszwithzregressivezratezstructureszresultzinzazproportionallyzheavierztaxzburdenzonzp
ersonszwithzsmallerztaxzbases.
22) Azprogressivezratezstructurezandzazproportionatezratezstructurezbothzresultzinzverticalzequityza
crossztaxpayers.
23) ThezU.S.zindividualzincomeztaxzhaszalwayszusedzazprogressivezratezstructure.
24) Thezdecliningzmarginalzutilityzofzincomezacrosszindividualszcanzbezmeasuredzempirically.
25) Taxzliabilityzdividedzbyztaxablezincomezequalszmarginalztaxzrate.
26) Ifzaztaxzhaszazproportionatezratezstructure,zaztaxpayer'szmarginalzratezandzaveragezratezarezeq
ual.
27) Ifzaztaxzhaszazprogressivezratezstructure,zaztaxpayer'szaveragezrateziszgreaterzthanzherzmarginalzra
te.
28) Theztheoryzofzdistributionalzjusticeziszazrationalezforzazprogressivezincomeztaxzsystem.
29) Individualszwhozbelievezthatzaztaxzsystemziszfairzarezlesszlikelyztozcheatzonztheirztaxeszthanzin
dividualszwhozbelievezthatzthezsystemziszunfair.
30) Manyztaxpayerszbelievezthezincomeztaxzsystemziszunfairzbecausezitziszsozcomplicated.
31) GovernmentzofficialszofzCountryzZzestimatezthatznextzyear'szpubliczprogramszwillzcostz$19zm
illionzbutzthatztaxzrevenueszwillzbezonlyz$15zmillion.zThezofficialszcouldzavoidzazdeficitznextzyearz
byzadoptingzwhichzofzthezfollowingzfiscalzstrategies?
A) Reducezthezcostzofzpubliczprogramszbyz$4zmillion.
B) Increaseztaxeszbyz$4zmillion.
C) Borrowz$4zmillionzbyzissuingznewzgovernmentzbonds.
D) Allzofzthesezstrategieszwillzavoidzazdeficit.
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32) GovernmentzofficialszofzCountryzZzestimatezthatznextzyear'szpubliczprogramszwillzcostz$19zm
illionzbutzthatztaxzrevenueszwillzbezonlyz$15zmillion.zWhichzofzthezfollowingzstatementsziszfalse?
A) CountryzZ'sztaxzsystemziszsufficient.
B) CountryzZ'szgovernmentziszengagingzinzdeficitzspending.
C) IfzCountryzZzmustzborrowz$4zmillionztozpayzforzitszpubliczprograms,zitsznationalzdebtzwillzin
creasezbyz$4zmillion.
D) CountryzZ'szgovernmentzcouldzbalancezitszbudgetzbyzeliminatingzazprogramzthatzcostsz$4zm
illion.
33) GovernmentzJzdecideszthatzitzmustzincreasezitsztaxzrevenue.zWhichzofzthezstrategieszcouldzre
sultzinzmorezrevenue?
A) Increasezthezratezofzanzexistingztax.
B) Expandzthezbasezofzanzexistingztax.
C) Enactzaztaxzonzaznewzbase.
D) AllzofzthesezstrategieszcouldzresultzinzmorezrevenuezforzGovernmentzJ.
34) ThezgovernmentzofzNationzCzoperatedzatzaz$32zbillionzdeficitzthiszyear.zThezdeficitzsuggestszth
atzNationzC'sztaxzsystemzis:
A) Inefficient
B) Insufficient
C) Unfair
D) Inconvenient
35) ThezcityzofzBelleviewzoperatedzatzanz$865,000zsurpluszthiszyear.zThezsurpluszsuggestszthatzthezm
unicipalztaxzsystemzis:
A) Fair
B) Efficient
C) Sufficient
D) Convenient
36) WhichzofzthezfollowingzstatementszconcerningzthezfederalzSocialzSecurityztaxzisztrue?
A) Theztaxzburdenzincreaseszannuallyzbecausezthezratezgenerallyzincreaseszannually.
B) Theztaxzburdenzincreaseszannuallyzbecausezthezbasezgenerallyzincreaseszannually.
C) Bothzthezratezandzthezbasezgenerallyzincreasezannually.
D) ThezSocialzSecurityztaxzburdenzhasznotzincreasedzsincez1990.
37) Azstaticzforecastzofzthezincrementalzrevenuezfromzaztaxzratezincreasezpresumeszthat:
A) Theztaxzbasezwillznotzchangezbecausezofzthezratezincrease.
B) Theztaxzbasezwillzincreasezbyzthezsamezproportionzaszthezratezincrease.
C) Theztaxzbasezwillzdecreasezbyzthezsamezproportionzaszthezratezincrease.
D) Theztaxzratezandztheztaxzbasezarezcorrelated.
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38) Azdynamiczforecastzofzthezincrementalzrevenuezfromzaztaxzratezincreasezpresumeszthat:
A) Taxpayerszwillznotzchangeztheirzbehaviorzbecausezofzthezratezincrease.
B) Theztaxzbasezwillzincreasezbyzthezsamezproportionzaszthezratezincrease.
C) Theztaxzbasezwillzdecreasezbyzthezsamezproportionzaszthezratezincrease.
D) Theztaxzratezandztheztaxzbasezarezcorrelated.
39) JurisdictionzFzlevieszaz10%zexciseztaxzonzthezpurchasezofzgolfzcarts.zThezannualzrevenuezfromzth
isztaxzaveragesz$800,000z(10%z*z$8zmillionzaveragezannualzgolfzcartzpurchases).zJurisdictionzFziszc
onsideringzraisingztheztaxzrateztoz12%.zWhichzofzthezfollowingzstatementszisztrue?
A) Thezratezincreasezwillzincreasezrevenuezbyz$160,000.
B) Basedzonzazdynamiczforecast,zthezratezincreasezwillzincreasezrevenuezbyz$160,000.
C) Basedzonzazstaticzforecast,zthezratezincreasezwillzincreasezrevenuezbyz$160,000.
D) Nonezofzthezabovezisztrue.
40) Lastzyear,zGovernmentzGzleviedzaz35%ztaxzonzindividualzincome,zandzMr.zSlatezpaidz$35,000zta
xzonzhisz$100,000zincome.zThiszyear,zthezgovernmentzincreasedztheztaxzrateztoz40%.zWhichzofzthezfo
llowingzstatementsziszfalse?
A) Basedzonzazstaticzforecast,zgovernmentzGzshouldzcollectz$5,000zadditionalztaxzfromzMr.zSlatezth
iszyear.
B) IfzMr.zSlateztookzazsecondzjobztozmaintainzhiszafter-
taxzdisposablezincome,zhiszbehaviorzillustrateszazsubstitutionzeffectzofzthezratezincrease.
C) IfzMr.zSlateztookzazsecondzjobztozmaintainzhiszafter-
taxzdisposablezincome,zgovernmentzGzshouldzcollectzmorezthanz$5,000zadditionalztaxzfromzhi
mzthiszyear.
D) IfzMr.zSlatezsoldzanzincome-
generatingzinvestmentzandzusedzthezmoneyzforzpersonalzconsumption,zhiszbehaviorzillustr
ateszazsubstitutionzeffectzofzthezratezincrease.
41) Whichzofzthezfollowingzstatementszaboutzthezsubstitutionzeffectzofzanzincomeztaxzratezin
creaseziszfalse?
A) Thezsubstitutionzeffectzisztheoreticallyzstrongerzforzhigh-incomeztaxpayerszthanzforzlow-
zincomeztaxpayers.
B) Thezsubstitutionzeffectzisztheoreticallyzstrongerzforzazfamily'szsecondaryzwagezearnerzthanzforzth
ezfamily'szprimaryzwagezearner.
C) Thezsubstitutionzeffectzisztheoreticallyzstrongerzforzself-
employedzindividualszwhozcontrolztheirzownztimezthanzforzemployeeszwhosezworkzscheduleszar
ezcontrolledzbyztheirzemployers.
D) Nonezofzthezaboveziszfalse.
42) Whichzofzthezfollowingzstatementszaboutzthezincomezeffectzofzanzincomeztaxzratezincreasezis
true?
A) Thezincomezeffectzisztheoreticallyzstrongerzforzlow-incomeztaxpayerszthanzforzhigh-
incomeztaxpayers.
B) Thezincomezeffectzisztheoreticallyzstrongerzforzazfamily'szsecondaryzwagezearnerzthanzforzthezfa
mily'szprimaryzwagezearner.
C) Thezincomezeffectzmotivateszindividualsztozfindzwaysztozincreaseztheirzbefore-taxzincome.
D) BothzA.zandzC.zareztrue.
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z z z z
PrincipleszofzTaxzforzBuszandzInvestzPlanz2018zEdz,z21ez(Jones)zC
hapterz2z PolicyzStandardszforzazGoodzTax
1) Aztaxzmeetszthezstandardzofzsufficiencyzifzitziszeasyzforzpeopleztozpayztheztax.
2) Thezfederalzgovernmentzisznotzrequiredztozpayzinterestzonztheznationalzdebt.
3) Azstaticzforecastzofzthezrevenuezeffectzofzaztaxzratezchangezassumeszthatztheztaxzbasezdoesznotzch
ange.
4) Azdynamiczforecastzofzthezrevenuezeffectzofzaztaxzratezchangezassumeszthatztheztaxzbasezdoeszno
tzchange.
5) ThezfederalzSocialzSecurityztaxzburdenzonzemployeeszhasznotzincreasedzsincez1990zbecausezthezta
xzratezhasznotzincreasedzsincezthatzyear.
6) IfzStatezHzincreaseszitszsalesztaxzratezbyz1%,zitszsalesztaxzrevenuezmustzalsozincreasezbyz1%.
7) ThezcityzofzBernezrecentlyzenactedzaz10%ztaxzonzthezpricezofzazsubwayzticket.zConsequently,zM
rs.zLaneznowzwalksztozworkzinsteadzofztakingzthezsubway.zHerzbehaviorzillustrateszthezsubstitutio
nzeffectzofzaztaxzincrease.
8) JurisdictionzPzrecentlyzincreasedzitszincomeztaxzrate.zAztaxpayerzwhozreactsztozthezincreasezbyzw
orkingzharderztozearnzmorezincomeziszdemonstratingzthezincomezeffectzofzthezratezincrease.
9) Accordingztozsupply-sidezeconomicztheory,zazdecreasezinztaxzrateszforzhigh-
incomezindividualszcouldzactuallyzcausezanzincreasezinztaxzrevenue.
10) Supply-
sidezeconomicztheoryzholdszthatzpeoplezwhozbenefitzfromzaztaxzratezreductionzwillzspendztheirzta
xzwindfallzonzconsumptionzgoods.
11) Statezuseztaxeszarezmorezconvenientzforzindividualzconsumerszthanzstatezsalesztaxes.
12) ThezInternalzRevenuezService'szcostzofzcollectingz$100zofztaxzrevenueziszaboutz$3.
13) Azconvenientztaxzhaszlowzcompliancezcostszforztaxpayerszandzlowzcollectionzandzenforcementzc
ostszforzthezgovernment.
14) Accordingztozthezclassicalzconceptzofzefficiency,zanzefficientztaxzshouldzbezneutralzinzitszef
fectzonzfreezmarketzallocationszofzeconomiczresources.
15) AccordingztozthezKeynesianzconceptzofzefficiency,zanzefficientztaxzshouldzbezneutralzinzitszef
fectzonzfreezmarketzallocationszofzeconomiczresources.
16) Aztaxzmeetszthezstandardzofzefficiencyzifzitzgenerateszenoughzrevenueztozpayzforzthezpubliczgo
odszandzserviceszprovidedzbyzthezgovernment.
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z z z z
17) Azprovisionzinztheztaxzlawzdesignedztozencouragezazspecificzeconomiczbehaviorziszaztaxzpr
eference.
18) Aztaxzshouldzresultzinzeitherzhorizontalzorzverticalzequityzacrossztaxpayers.
19) Changeszinztheztaxzlawzintendedztozmakezthezmeasurementzofztaxablezincomezmorezprecisezus
uallyzmakeztheztaxzlawzlesszcomplex.
20) Verticalzequityzfocuseszonzmeasurementzofztheztaxzbase,zandzhorizontalzequityzfocuseszonzthezta
xzratezstructure.
21) Taxzsystemszwithzregressivezratezstructureszresultzinzazproportionallyzheavierztaxzburdenzonzp
ersonszwithzsmallerztaxzbases.
22) Azprogressivezratezstructurezandzazproportionatezratezstructurezbothzresultzinzverticalzequityza
crossztaxpayers.
23) ThezU.S.zindividualzincomeztaxzhaszalwayszusedzazprogressivezratezstructure.
24) Thezdecliningzmarginalzutilityzofzincomezacrosszindividualszcanzbezmeasuredzempirically.
25) Taxzliabilityzdividedzbyztaxablezincomezequalszmarginalztaxzrate.
26) Ifzaztaxzhaszazproportionatezratezstructure,zaztaxpayer'szmarginalzratezandzaveragezratezarezeq
ual.
27) Ifzaztaxzhaszazprogressivezratezstructure,zaztaxpayer'szaveragezrateziszgreaterzthanzherzmarginalzra
te.
28) Theztheoryzofzdistributionalzjusticeziszazrationalezforzazprogressivezincomeztaxzsystem.
29) Individualszwhozbelievezthatzaztaxzsystemziszfairzarezlesszlikelyztozcheatzonztheirztaxeszthanzin
dividualszwhozbelievezthatzthezsystemziszunfair.
30) Manyztaxpayerszbelievezthezincomeztaxzsystemziszunfairzbecausezitziszsozcomplicated.
31) GovernmentzofficialszofzCountryzZzestimatezthatznextzyear'szpubliczprogramszwillzcostz$19zm
illionzbutzthatztaxzrevenueszwillzbezonlyz$15zmillion.zThezofficialszcouldzavoidzazdeficitznextzyearz
byzadoptingzwhichzofzthezfollowingzfiscalzstrategies?
A) Reducezthezcostzofzpubliczprogramszbyz$4zmillion.
B) Increaseztaxeszbyz$4zmillion.
C) Borrowz$4zmillionzbyzissuingznewzgovernmentzbonds.
D) Allzofzthesezstrategieszwillzavoidzazdeficit.
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32) GovernmentzofficialszofzCountryzZzestimatezthatznextzyear'szpubliczprogramszwillzcostz$19zm
illionzbutzthatztaxzrevenueszwillzbezonlyz$15zmillion.zWhichzofzthezfollowingzstatementsziszfalse?
A) CountryzZ'sztaxzsystemziszsufficient.
B) CountryzZ'szgovernmentziszengagingzinzdeficitzspending.
C) IfzCountryzZzmustzborrowz$4zmillionztozpayzforzitszpubliczprograms,zitsznationalzdebtzwillzin
creasezbyz$4zmillion.
D) CountryzZ'szgovernmentzcouldzbalancezitszbudgetzbyzeliminatingzazprogramzthatzcostsz$4zm
illion.
33) GovernmentzJzdecideszthatzitzmustzincreasezitsztaxzrevenue.zWhichzofzthezstrategieszcouldzre
sultzinzmorezrevenue?
A) Increasezthezratezofzanzexistingztax.
B) Expandzthezbasezofzanzexistingztax.
C) Enactzaztaxzonzaznewzbase.
D) AllzofzthesezstrategieszcouldzresultzinzmorezrevenuezforzGovernmentzJ.
34) ThezgovernmentzofzNationzCzoperatedzatzaz$32zbillionzdeficitzthiszyear.zThezdeficitzsuggestszth
atzNationzC'sztaxzsystemzis:
A) Inefficient
B) Insufficient
C) Unfair
D) Inconvenient
35) ThezcityzofzBelleviewzoperatedzatzanz$865,000zsurpluszthiszyear.zThezsurpluszsuggestszthatzthezm
unicipalztaxzsystemzis:
A) Fair
B) Efficient
C) Sufficient
D) Convenient
36) WhichzofzthezfollowingzstatementszconcerningzthezfederalzSocialzSecurityztaxzisztrue?
A) Theztaxzburdenzincreaseszannuallyzbecausezthezratezgenerallyzincreaseszannually.
B) Theztaxzburdenzincreaseszannuallyzbecausezthezbasezgenerallyzincreaseszannually.
C) Bothzthezratezandzthezbasezgenerallyzincreasezannually.
D) ThezSocialzSecurityztaxzburdenzhasznotzincreasedzsincez1990.
37) Azstaticzforecastzofzthezincrementalzrevenuezfromzaztaxzratezincreasezpresumeszthat:
A) Theztaxzbasezwillznotzchangezbecausezofzthezratezincrease.
B) Theztaxzbasezwillzincreasezbyzthezsamezproportionzaszthezratezincrease.
C) Theztaxzbasezwillzdecreasezbyzthezsamezproportionzaszthezratezincrease.
D) Theztaxzratezandztheztaxzbasezarezcorrelated.
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z z z z
38) Azdynamiczforecastzofzthezincrementalzrevenuezfromzaztaxzratezincreasezpresumeszthat:
A) Taxpayerszwillznotzchangeztheirzbehaviorzbecausezofzthezratezincrease.
B) Theztaxzbasezwillzincreasezbyzthezsamezproportionzaszthezratezincrease.
C) Theztaxzbasezwillzdecreasezbyzthezsamezproportionzaszthezratezincrease.
D) Theztaxzratezandztheztaxzbasezarezcorrelated.
39) JurisdictionzFzlevieszaz10%zexciseztaxzonzthezpurchasezofzgolfzcarts.zThezannualzrevenuezfromzth
isztaxzaveragesz$800,000z(10%z*z$8zmillionzaveragezannualzgolfzcartzpurchases).zJurisdictionzFziszc
onsideringzraisingztheztaxzrateztoz12%.zWhichzofzthezfollowingzstatementszisztrue?
A) Thezratezincreasezwillzincreasezrevenuezbyz$160,000.
B) Basedzonzazdynamiczforecast,zthezratezincreasezwillzincreasezrevenuezbyz$160,000.
C) Basedzonzazstaticzforecast,zthezratezincreasezwillzincreasezrevenuezbyz$160,000.
D) Nonezofzthezabovezisztrue.
40) Lastzyear,zGovernmentzGzleviedzaz35%ztaxzonzindividualzincome,zandzMr.zSlatezpaidz$35,000zta
xzonzhisz$100,000zincome.zThiszyear,zthezgovernmentzincreasedztheztaxzrateztoz40%.zWhichzofzthezfo
llowingzstatementsziszfalse?
A) Basedzonzazstaticzforecast,zgovernmentzGzshouldzcollectz$5,000zadditionalztaxzfromzMr.zSlatezth
iszyear.
B) IfzMr.zSlateztookzazsecondzjobztozmaintainzhiszafter-
taxzdisposablezincome,zhiszbehaviorzillustrateszazsubstitutionzeffectzofzthezratezincrease.
C) IfzMr.zSlateztookzazsecondzjobztozmaintainzhiszafter-
taxzdisposablezincome,zgovernmentzGzshouldzcollectzmorezthanz$5,000zadditionalztaxzfromzhi
mzthiszyear.
D) IfzMr.zSlatezsoldzanzincome-
generatingzinvestmentzandzusedzthezmoneyzforzpersonalzconsumption,zhiszbehaviorzillustr
ateszazsubstitutionzeffectzofzthezratezincrease.
41) Whichzofzthezfollowingzstatementszaboutzthezsubstitutionzeffectzofzanzincomeztaxzratezin
creaseziszfalse?
A) Thezsubstitutionzeffectzisztheoreticallyzstrongerzforzhigh-incomeztaxpayerszthanzforzlow-
zincomeztaxpayers.
B) Thezsubstitutionzeffectzisztheoreticallyzstrongerzforzazfamily'szsecondaryzwagezearnerzthanzforzth
ezfamily'szprimaryzwagezearner.
C) Thezsubstitutionzeffectzisztheoreticallyzstrongerzforzself-
employedzindividualszwhozcontrolztheirzownztimezthanzforzemployeeszwhosezworkzscheduleszar
ezcontrolledzbyztheirzemployers.
D) Nonezofzthezaboveziszfalse.
42) Whichzofzthezfollowingzstatementszaboutzthezincomezeffectzofzanzincomeztaxzratezincreasezis
true?
A) Thezincomezeffectzisztheoreticallyzstrongerzforzlow-incomeztaxpayerszthanzforzhigh-
incomeztaxpayers.
B) Thezincomezeffectzisztheoreticallyzstrongerzforzazfamily'szsecondaryzwagezearnerzthanzforzthezfa
mily'szprimaryzwagezearner.
C) Thezincomezeffectzmotivateszindividualsztozfindzwaysztozincreaseztheirzbefore-taxzincome.
D) BothzA.zandzC.zareztrue.
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