Assume that both the corporate and noncorporate sectors are in long-run equilibrium before the imposition of a corporate profits tax. In the short run, the imposition of a corporate profits tax will ________ profits in the noncorporate sector, but ________ profits in the corporate sector.

A) increase; decrease
B) not change; not change
C) not change; decrease
D) decrease; increase

Corporate Profits Tax

A tax imposed on the net income of corporations.

Long-Run Equilibrium

A state where all factors of production are variable, allowing firms to make adjustments, resulting in the economy or industry operating at its full capacity.

Noncorporate Sector

The part of an economy that involves the production of goods and services by individuals and organizations which are not incorporated as companies.