Principles of Macroeconomics Plus MyLab Economics with Pearson eText (1-semester access) -- Access Card Package (12th Edition)
12th Edition
ISBN: 9780134424026
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 15, Problem 1.2P
To determine
Effects of income tax on labor effort and labor supply.
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Consider the following hypothetical tax schedule, expressed in nominal terms, for the tax year 2021-22.
Assuming the CPI is 100 in 2021-22 and 125 in 2022-23, but the government does not adjust the tax schedule for tax year 2022-23, what is the average tax rate in 2022-23 for a household earning $48,000 in 2021-22, assuming their nominal income goes up with inflation?
15%
10%
9.1%
8.6%
7.7%
According to Martin Gilens, which of the following best explains why most Americans are in favor of cutting welfare spending?
a. They think that welfare benefits are too high
b. They perceive the government as inefficiently spending the money
c. They think that the government should instead redirect the money toward strengthening the country's military defense.
d. They think that the government should instead redirect the money toward funding unemployment insurance.
e. They perceive a vast majority of welfare recipients as undeserving of government assistance.
Why might one person work more, earn more, and pay more income tax when his or her tax rate is cut, while another person will work less, earn less, and pay less income tax under the same circumstance?
Chapter 15 Solutions
Principles of Macroeconomics Plus MyLab Economics with Pearson eText (1-semester access) -- Access Card Package (12th Edition)
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- For each of the following, state whether the policy would work according to the current income theory and the permanent income theory and explain why in detail. A permanent increase of $500 in Social Security payments to all recipients. An increase in the duration of state unemployment benefits [from 26 weeks to 52 weeks] plus a special additional Federal benefit of $300 per week. Forgiveness of all student debt in excess of $15,000 currently outstanding Forgiveness of all student debt currently outstanding and a rebate of interest and principle for all previously paid student debt going back to 1970 to be paid out in a lump sum but not to exceed $100,000 per student. Forgiveness of all student debt currently outstanding and a rebate of interest and principle for all previously paid student debt going back to 1970 to be paid out in monthly installments over ten years but not to exceed $100,000 per student.arrow_forwardCongress passed the CARES Act to provide an economic safety net during the Covid-19 pandemic shutdown. The CARES Act included stimulus checks that were sent to some households. Households with individuals making up to $75,000 received a $1,200 check and households with married couples making up to $150,000 received a $2,400 check. Think about how the savings rate varies with household income and the utility of savings versus spending when answering the questions below. Does the particular income limit imposed make sense? Should it be higher, lower, or should there be no limit. Provide an explanation for your answer.arrow_forwardThe 2008 financial crisis had a dramatic impact on the wealth of households. Since then, has household wealth[1] (that is, the average wealth across households) returned to its pre-2008 levels?arrow_forward
- Use the following to answer the following questions. Susan works as a district attorney. She earns, before taxes, around $80,000 each year. Each year, she pays around $15,000 in taxes. She also recently bought a house. She thinks the house is worth $325,000, but Susan still owes $200,000 on the mortgage. Each year she pays around $14,000 in mortgage payments. Additionally, Susan purchased a car. Today the car is worth only $12,000, Susan still owes $7,000 on it, and she makes payments totaling $3,500 on it each year. Susan also has other expenses including $6,000 each year on groceries, $3,000 each year on entertainment, $3,600 each year on household goods, and $1,200 each year on dining out. Which is closest to Susan's total present net worth? (Select the correct answer.) Group of answer choices $210,000 $128,000 $82,000 $44,000arrow_forwardSuppose the government decides to borrow money. The equilibrium interest rate will _____ and the total amount borrowed will _____arrow_forwardAccording to the classical economists, those who are not working A) are unable to find a job at the current wage rate. B) have chosen not to work at the market wage. C) are too productive to be hired at the current wage. D) have given up looking for a job but would accept a job at the current wage if one were offered to them.arrow_forward
- Explain the meaning of comprehensive income and show how a tax on interest income influence people willingness to save.arrow_forwardSocial Security benefits are increased each year in proportion to the increase in the CPI, even though most economists believe that the CPI overstates actual inflation.arrow_forwardCongress passed the CARES Act to provide an economic safety net during the Covid-19 pandemic shutdown. The CARES Act included stimulus checks that were sent to some households. Households with individuals making up to $75,000 received a $1,200 check and households with married couples making up to $150,000 received a $2,400 check. Think about how the savings rate varies with household income and the utility of savings versus spending when answering the questions below. Explain why Congress only sent stimulus checks to households up to a certain income level.arrow_forward
- Evaluate as accurately as you can how each of the following individuals would be affected by unanticipated inflflation of 10 percent per year:a. A pensioned railroad worker.b. A department-store clerk.c. A unionized automobile assembly-line worker.d. A heavily indebted farmer.e. A retired business executive whose current income comes entirely from interest on government bonds.f. The owner of an independent small-town department store.arrow_forwardAssume you put money into an asset that pays you 7 percent interest and inflation is 5 percent. Which statement is correct? This means the nominal rate of interest is 7 percent and the real rate is 5 percent. This means the real rate of interest is 2 percent. The textbook states that all interest rates would be assumed to be the real rate; thus, the nominal rate is 12 percent. This means the nominal rate of interest is 35 percent. If the rate of inflation falls, your real rate of interest from this asset would also fall.arrow_forwardAccording to the Permanent Income Hypothesis (PIH), what should a consumer do if she receives news that she will be demoted next year (and her salary will be halved)? Draw the paths of income and consumption for this consumer.arrow_forward
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