Economics · Economy
Consider the following statements regarding taxation and macroeconomic stabilisation: Statement I: A proportional income tax system can function as an automatic stabiliser in the economy. Statement II: Under a proportional income tax regime, disposable income tends to fluctuate less sharply than GDP during economic cycles. Which one of the following is correct in respect of the above statements?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Statement I is incorrect but Statement II is correct.
- 2Statement I is correct but Statement II is incorrect.
- 3Both Statement I and Statement II are correct but Statement II does not explain Statement I.
- 4Both Statement I and Statement II are correct and Statement II explains Statement I.✓
Correct answer
Both Statement I and Statement II are correct and Statement II explains Statement I.
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