5. Refer to the accompanying table for Waxwania. Government Expenditures,G $160

Question

5. Refer to the accompanying table for Waxwania. Government Expenditures,G $160 160 160 160 160 Tax Real GDP $500 600 700 800 900 evenues, T 100 120 140 160 180 a. Given the table above: i. What is the marginal tax rate in Waxwania? ii. The average tax rate? i. Which of the following describes the tax system: proportional, progressive, or regressiv b. Suppose Waxwania is producing $600 of real GDP, whereas the potential real GDP (or full-employment real GDP) is $700. i. How large is its budget deficit? ii. Its cyclically adjusted budget deficit? ii. How large is its cyclically adjusted budget deficit as a percentage of potential real GDP? 6. Suppose in Fiscalville there is no tax on the first $10,000 of income, but a 20 percent tax on earnings between $10,000 and $20,000 and a 30 percent tax on income between $20,000 and $30,000. Any income above $30,000 is taxed at 40 percent. a. If your income is $50,000, how much will you pay in taxes? b. Determine your marginal and average tax rates i. The marginal tax rate is ii. The average tax rate is c. Is this a progressive tax?

Explanation / Answer

5) a) marginal rate=20/100*100=20%

B)avg tax rate=total tax/ real gDP=20%

C) proportional tax as tax rate remains same

B)1) budget deficit=G-Taxes=160-120=40

2)cyclically adjusted budget deficit=20

3)20/700*100=2.8%

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