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AE LINE: Another term for aggregate expenditure line, which is a line representing the relation between aggregate expenditures and gross domestic product used in the Keynesian cross. The aggregate expenditure line is obtained by adding investment expenditures, government purchases, and net exports to the consumption line. As such, the slope of the aggregate expenditure line is largely based on the slope of the consumption line (which is the marginal propensity to consume), with adjustments coming from the marginal propensity to invest, the marginal propensity for government purchases, and the marginal propensity to import. The intersection of the aggregate expenditures line and the 45-degree line identifies the equilibrium level of output in the Keynesian cross.
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                           AD VALOREM TAX: A tax specified as a percentage of the price or value of a good, service, asset, or other activity. Ad valorem taxes tend to be broad based, imposed on activities such as income and retail sales. In fact, the two most important ad valorem taxes are income taxes and sales taxes. People pay a percentage of their incomes in income taxes or a percentage or the value of their purchases in sales taxes, regardless of the amount of time spent working or the quantities of goods purchases. An alternative is a per unit tax, with is a tax specified as a percentage of the physical quantity of a good. An ad valorem tax is a tax in which the tax base is specified as a dollar value rather than a physical quantity. If, for example, the a city government places an ad valorem tax of 10 percent on retail sales (a sales tax), then buyers and/or sellers are responsible for paying an extra 10 cents on each dollar of commondities sold. Not only will the the total tax depend on the quantity sold, but more also importantly it depends on the price.If you buy $100 worth of food at your local discount grocery store, then the city government collects a total tax of $10 (10 percent x $100). If your close friends buys exactly the same items from a high end food boutique, paying $150, then the then the city government collects a total tax of $15 (10 per cent x $150). It makes a difference that you paid lower prices than your friend for the same items. This type of tax can be illustrated using the following tax calculation equation. The total tax collected is the product of the tax rate and the tax base. An ad valorem tax exists if the tax base is specified as a dollar. In the previous example, the tax rate is the ad valorem tax of 10 percent of sales and the tax base is the value of commodities sold. Ad valorem taxes tend to be broadbased, such as sales or income, in which quantity bought, sold, or exchanged is difficult to track or aggregate. Collecting taxes on the various quantities of different retail goods exchanged would be exceedingly difficult -- 5 cents on each bottle of soda pop, 2 cents on each candy bar, 15 cents on each gallon of milk, $1 on each T-bone steak, etc. An ad valorem sales tax is easier to administer. Calculate the total sales value, then collect a percentage of this value.Ad valorem taxes are commonly the preferred method of collecting the revenue used by governments to provide public goods and generally finance government operations (the revenue effect). When broadbased, they tend to have less of an allocation effect. An alternative type of tax is a per unit tax, in which the tax base is specified as a physical quantity. A per unit tax, in contrast to an ad valorem tax, does not depend on price. A higher price does not means a higher tax.
Recommended Citation:AD VALOREM TAX, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: May 15, 2025].
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