The difference between a fixed tax and a variable tax is that
A)fixed taxes can never be changed, but variable taxes can be changed.
B)a change in fixed taxes has no effect on aggregate demand, but a change in variable taxes has an impact.
C)a variable tax changes when GDP changes, but a fixed tax does not change with GDP.
D)a variable tax can be changed easily, whereas changing fixed taxes requires a constitutional amendment.

Question

Quizplus · Accepted Answer

A fixed tax is a tax that remains the same regardless of changes in income or GDP, while a variable tax changes in proportion to changes in income or GDP. Therefore, choice C correctly identifies the difference between the two types of taxes. The other choices are incorrect. Choice A is incorrect because both fixed and variable taxes can be changed. Choice B is incorrect because a change in either fixed or variable taxes can impact aggregate demand. Choice D is incorrect because neither fixed nor variable taxes require a constitutional amendment to be changed.

The Difference Between a Fixed Tax and a Variable Tax