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According to the principle, when is the maximum social advantage achieved in fiscal operations?
- a)When public expenditure is minimized.
- b)When taxation is minimized.
- c)When the marginal social benefit of public expenditure equals the marginal social sacrifice of taxation.
- d)When the government's budget is at its maximum.
Correct answer is option 'C'. Can you explain this answer?
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Most Upvoted Answer
According to the principle, when is the maximum social advantage achie...
The correct answer is option 'C': When the marginal social benefit of public expenditure equals the marginal social sacrifice of taxation.
Explanation:
Fiscal operations refer to the activities related to the government's revenue and expenditure. The principle states that the maximum social advantage is achieved when the marginal social benefit of public expenditure equals the marginal social sacrifice of taxation. Let's break down this principle and understand it in detail:
1. Marginal Social Benefit (MSB) of public expenditure:
- Public expenditure refers to the government's spending on various goods and services such as healthcare, education, infrastructure, defense, etc.
- The marginal social benefit is the additional benefit society receives from each additional unit of public expenditure.
- Initially, as public expenditure increases, the marginal social benefit also increases. This is because the first units of public expenditure provide significant benefits to society, such as improved infrastructure or better healthcare facilities.
2. Marginal Social Sacrifice (MSS) of taxation:
- Taxation is the process of collecting money from individuals and businesses by the government to fund its expenditures.
- The marginal social sacrifice is the additional burden or cost imposed on society for each additional unit of taxation.
- Initially, as taxation increases, the marginal social sacrifice also increases. This is because higher taxes result in reduced disposable income for individuals and businesses, which can have a negative impact on consumption, investment, and economic growth.
3. Equilibrium point:
- The maximum social advantage is achieved when the marginal social benefit of public expenditure equals the marginal social sacrifice of taxation.
- At this point, the additional benefit society receives from each additional unit of public expenditure is equal to the additional burden imposed by each additional unit of taxation.
- This equilibrium ensures that resources are allocated efficiently, and the overall welfare of society is maximized.
In summary, the principle suggests that the maximum social advantage is achieved when the marginal social benefit of public expenditure equals the marginal social sacrifice of taxation. This equilibrium ensures that resources are allocated efficiently and society receives the maximum benefit from government spending while minimizing the burden of taxation.
Explanation:
Fiscal operations refer to the activities related to the government's revenue and expenditure. The principle states that the maximum social advantage is achieved when the marginal social benefit of public expenditure equals the marginal social sacrifice of taxation. Let's break down this principle and understand it in detail:
1. Marginal Social Benefit (MSB) of public expenditure:
- Public expenditure refers to the government's spending on various goods and services such as healthcare, education, infrastructure, defense, etc.
- The marginal social benefit is the additional benefit society receives from each additional unit of public expenditure.
- Initially, as public expenditure increases, the marginal social benefit also increases. This is because the first units of public expenditure provide significant benefits to society, such as improved infrastructure or better healthcare facilities.
2. Marginal Social Sacrifice (MSS) of taxation:
- Taxation is the process of collecting money from individuals and businesses by the government to fund its expenditures.
- The marginal social sacrifice is the additional burden or cost imposed on society for each additional unit of taxation.
- Initially, as taxation increases, the marginal social sacrifice also increases. This is because higher taxes result in reduced disposable income for individuals and businesses, which can have a negative impact on consumption, investment, and economic growth.
3. Equilibrium point:
- The maximum social advantage is achieved when the marginal social benefit of public expenditure equals the marginal social sacrifice of taxation.
- At this point, the additional benefit society receives from each additional unit of public expenditure is equal to the additional burden imposed by each additional unit of taxation.
- This equilibrium ensures that resources are allocated efficiently, and the overall welfare of society is maximized.
In summary, the principle suggests that the maximum social advantage is achieved when the marginal social benefit of public expenditure equals the marginal social sacrifice of taxation. This equilibrium ensures that resources are allocated efficiently and society receives the maximum benefit from government spending while minimizing the burden of taxation.
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According to the principle, when is the maximum social advantage achie...
The maximum social advantage is achieved when the marginal social benefit (MSB) of public expenditure equals the marginal social sacrifice (MSS) of taxation. In other words, the point at which the benefits derived from additional public spending are equal to the sacrifices made through increased taxation is the equilibrium point of maximum social advantage. This point ensures that society gains the most benefit from its fiscal operations while minimizing the overall loss.
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According to the principle, when is the maximum social advantage achieved in fiscal operations?a)When public expenditure is minimized.b)When taxation is minimized.c)When the marginal social benefit of public expenditure equals the marginal social sacrifice of taxation.d)When the government's budget is at its maximum.Correct answer is option 'C'. Can you explain this answer?
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