Macroeconomics GEN 183 Quiz 5: Income Taxes…

Macroeconomics
GEN 183
Quiz 5: Income Taxes
True/False Questions
(Each question is worth 5 points)
If the marginal tax rate increases with an increase in income, it implies the average tax rate also increases with an increase in income.
If the government lowers the tax rates, consumption increases by less than the increase in disposable income.
The substitution effect of an increase in real wages states that workers substitute leisure for consumption as the real wage increases.
Government purchases remaining the same, a tax cut by the government lowers national savings.
Multiple Choice Questions
(Each question is worth 10 points)
The following table shows the income tax schedule for single tax filers in the United States in the year 2016. Use this table to answer questions 1 and 2.
If Taxable Income
The Tax Is Then
Is Over
But Not Over
This Amount
Plus This %
Of the Excess Over
$0
$9,275
$0
10
$0
$9,275
$37,650
$927.50
15
$9,275
$37,650
$91,150
$5,183.75
25
$37,650
$91,150
$190,150
$18,558.75
28
$91,150
$190,150
$413,350
$46,278.75
33
$190,150
$413,350
$415,050
$119,934.75
35
$413,350
$415,050
––
$120,529.75
39.6
$415,050
Calculate the amount of tax to be paid by an individual whose annual income is $40,000.
$10,000.25
$8,525.00
$6,575.75
$9,500.50
$5,771.25
Compute the average tax rate of an individual who earns $40,000.
9.5%
14.4%
8%
12.4%
10.3%
Which of the following will result from a tax cut adopted by the government?
A decrease in disposable income
A decrease in money supply
A decrease in the opportunity cost of labor
A budget surplus
An increase in private savings
Calculate the annual consumption of a household if its autonomous consumption is $10,000, the marginal propensity to consume is 0.4, and the annual disposable income is $50,000.
$40,000
$20,000
$30,000
$35,000
$25,000
Suppose the government reduces the tax rate such that an individual’s annual disposable income increases by $6,000. Calculate the increase in his savings, if his marginal propensity to consume is 0.6.
$2,600
$2,500
$2,400
$3,000
$3,600
Suppose the government announces a tax cut worth $14 million. Calculate the change in national savings if the marginal propensity to consume of an average household is 0.7. (Assume that the government expenditure remains unaltered.)
+$8,500,000
–$7,700,000
–$10,600,250
+$10,500,000
–$9,800,000
The income effect of an increase in real wage predicts that the:
Consumption of goods and services will decrease with an increase in the real wage.
Opportunity cost of leisure will increase with an increase in the real wage.
Labor supply will increase with an increase in the real wage.
The marginal cost of hiring workers by the firms will increase with an increase in the real wage.
Labor supply will decline with an increase in the real wage.
According to supply-side economists, as tax rates are reduced, labor supply should increase. This implies that:
The income effect of a wage change is stronger than the substitution effect.
There is no income effect when tax rates are changed.
The substitution effect of a wage change is stronger than the income effect.
There is no substitution effect when the tax rates are changed.
The income effect of wage change exactly offsets the substitution effect.
Attachments:
9348297_1_Quiz5.docx