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Econ 31402
Fall 2009
Handout #12 Answer Key
1.
(Question Four from Abel et.al., Chapter 15, numerical problems)
(a) In this situation, someone earning income
Y
between
$8
;
000
and
$20
;
000
pays a
total tax of
T
= (0
:
25)
(
Y
±
$8
;
000)
, while someone earning between
$20
;
000
and
$30
;
000
pays tax of
T
= $3
;
000 + (0
:
30)
(
Y
±
$20
;
000)
.
Someone with income of
$16
;
000
then pays tax of
(0
:
25)
($16
;
000
±
$8
;
000) =
$2
;
000
. This gives an average tax rate of
$2
;
000
$16
;
000
= 12
:
5%
, while the marginal tax
rate is
25%
.
Someone with income of
$30
;
000
then pays tax of
$3
;
000 + (0
:
30)
($30
;
000
±
$20
;
000) = $6
;
000
. This gives an average tax rate of
$6
;
000
$30
;
000
= 20%
, while the
marginal tax rate is
30%
.
(b) In this situation, someone earning income
Y
between
$6
;
000
and
$20
;
000
pays a
total tax of
T
= (0
:
20)
(
Y
±
$6
;
000)
, while someone earning between
$20
;
000
and
$30
;
000
pays tax of
T
= $2800 + (0
:
30)
(
Y
±
$20
;
000)
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This note was uploaded on 03/10/2010 for the course ECON 3140 taught by Professor Mbiekop during the Spring '07 term at Cornell University (Engineering School).
 Spring '07
 MBIEKOP
 Macroeconomics

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