EBK MACROECONOMICS (FOURTH EDITION)
4th Edition
ISBN: 9780393616125
Author: Jones
Publisher: YUZU
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Chapter 7, Problem 3E
To determine
Effect of reducing marginal income tax rate on wage rate, employment–population ratio, and
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The table below shows labor income for four individuals and the amount each has paid in income
taxes.
Labor Income, Tax Paid, and Average Tax Rate
Labor Income
Tax Paid
(dollars)
$6,300
9,240
11,200
17,500
Individual
Samantha
Charles
Amanda
Young
(dollars)
$45,000
66,000
80,000
125,000
Average Tax Rate
(percent)
The income tax is proportional.
The income tax is progressive.
The income tax is regressive.
%
P
Instructions: Enter your answers as a whole number.
a. Complete the table above by calculating the average tax rate paid by each individual.
b. Is the income tax depicted here progressive, regressive, or proportional?
d) Illustrate and carefully explain the impact of an increase in the income tax rate from 25 percent to 35 percent on the demand for labour, supply of labour, equilibrium wage and level of employment.
Workers are generally willing to work more hours when wages increase because
the opportunity cost of leisure increases with higher wages.
higher labor incomes are taxed at a lower rate by the government.
workers fear wages will soon fall as immigration increases.
workers are not motivated to work for higher wages.
Chapter 7 Solutions
EBK MACROECONOMICS (FOURTH EDITION)
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