Which statement is the best definition of a progressive tax system over a business cycle?
A) A constant fraction of income is taxed throughout the business cycle, i.e., as the economy experiences considerable fluctuation.
B) A larger fraction of income is taxed in expansions than in contractions.
C) A smaller fraction of income is taxed in expansions than in contractions.
D) There is a decreasing amount of income in both expansions and contractions.

Question

Which statement is the best definition of a progressive tax system over a business cycle?  
A) A constant fraction of income is taxed throughout the business cycle, i.e., as the economy experiences considerable fluctuation. 
B) A larger fraction of income is taxed in expansions than in contractions. 
C) A smaller fraction of income is taxed in expansions than in contractions. 
D) There is a decreasing amount of income in both expansions and contractions.

Quizplus · Accepted Answer

A progressive tax system is one where the tax rate increases as the income of the taxpayer increases. Over a business cycle, which is typically characterized by alternating periods of expansion and contraction, a progressive tax system would adjust the tax rate based on changes in income levels. Option B is the best definition as it states that a larger fraction of income is taxed in expansions than in contractions, which is consistent with the idea that higher income levels are more prevalent during an expansionary phase.

Which Statement Is the Best Definition of a Progressive Tax