Problem Set 3 solutions - EC 202 Winter 2015 University of Oregon Problem Set 3 Solutions Problem Set#3 Suggested Solutions 1(2 points For each

Problem Set 3 solutions - EC 202 Winter 2015 University of...

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EC 202, Winter 2015 Problem Set 3 Solutions University of Oregon Page 1 of 8 Problem Set #3 Suggested Solutions 1. (2 points) For each situation, draw the necessary shift (or shifts) of a curve (or curves) on the graph , drawing any appropriate arrows and labeling any newly drawn curves. On the side, indicate whether the overall price level and the level of output (GDP) will increase, decrease, stay the same, or change ambiguously over the time frame described. a. An earthquake and its powerful aftershocks temporarily disrupt the production and distribution of goods. In the long run the overall price level increases. decreases. stays the same. changes in an ambiguous way. [Circle one of the above.] In the long run the level of output (GDP) increases. decreases. stays the same. changes in an ambiguous way. [Circle one of the above.] b. Political reforms lead to an improvement in institutions while at the same time households and firms become more confident about the future performance of the economy. In the short run the overall price level increases. decreases. stays the same. changes in an ambiguous way. [Circle one of the above.] In the short run the level of output (GDP) increases. decreases. stays the same. changes in an ambiguous way. [Circle one of the above.] SRAS 2 SRAS 2 LRAS 2 AD 2
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EC 202, Winter 2015 Problem Set 3 Solutions University of Oregon Page 2 of 8 2. (1.5 points) Sumit is single and works at the Federal Reserve Bank of Chicago as a researcher. Assume for 2014 his taxable income after his personal exemption and the standard deduction was $102,850 and that he will take no other deductions. Use the following table of the tax brackets for 2014 to answer the following questions. 2014 Federal Tax Brackets Rate Single Filers 10% $0 to $9,075 15% $9,076 to $36,900 25% $36,901 to $89,350 28% $89,351 to $186,350 33% $186,351 to $405,100 35% $405,101 to 406,750 39.6% $406,751+ a. What was Sumit’s marginal tax rate for 2014? Briefly explain. Since Sumit’s taxable income ($102,850) fits in the range $89,351 to $186,350 his marginal tax rate is 28%. Sumit’s marginal tax rate 28% b. Calculate the amount of income tax that Sumit owes for 2014. Show your work. Round your answer to the nearest penny. (9,075 – 0)·0.10 = 907.50 (36,900 – 9,075)·0.15 = 4,173.75 (89,350 – 36,900)·0.25 = 13,112.50 (102,850 – 89,350)·0.28 = 3,780.00 907.50 + 4,173.75 + 13,112.50 + 3,780.00 = 21,973.75 amount of income tax Sumit owes for 2014 21,973.75 c. If Sumit’s gross income before his personal exemption and standard deduction was $117,000 in 2014, what was the average tax rate for his federal income tax? Show your work. Express your answer as a percentage and round that percentage to one decimal place. 21,973.75/102,850 21.36% Sumit’s average tax rate 21.36%
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EC 202, Winter 2015 Problem Set 3 Solutions University of Oregon Page 3 of 8 3. (3 points) Go to the website of the White House on the budget. Start with the Historical Tables page: a. Open Table 1.1 and find the following information about budget revenues, outlays, deficits, and surpluses. (Note that you can download a pdf of the tables if you can’t get the spreadsheet files to open.) How much did the federal government spend in 1914? $726 million In what year did the federal government last run a surplus?
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