If government tax policy requires Jane to pay $28,000 in taxes on annual income

Question

If government tax policy requires Jane to pay $28,000 in taxes on annual income of $200,000 and Mary to pay $10,000 in tax on annual income of $100,000, then the tax policy is:

regressive.

progressive.

proportional.

optional.

When increasing oil prices cause aggregate supply to shift to the left, then:

unemployment and inflation decrease.

unemployment decreases and inflation increases.

unemployment and inflation increase.

unemployment increases and inflation decreases.

What do goods like gasoline, tobacco, and alcohol typically share in common?

A progressive tax is imposed on each of them.

A regressive tax is imposed on each of them.

They are all subject to government excise taxes.

They are all subject to government fiscal taxes.

When inflation begins to climb to unacceptable levels in the economy, the government should:

use contractionary fiscal policy to shift aggregate demand to the right.

use contractionary fiscal policy to shift aggregate demand to the left.

use expansionary fiscal policy to shift aggregate demand to the right.

use expansionary fiscal policy to shift aggregate demand to the left.

regressive.

progressive.

proportional.

optional.

Explanation / Answer

1. In order to answer this question, we need to find out the tax-rate paid by Jane and Mary.

Jane pays $28,000 tax on annual income of $200,000. So, the rate of tax for Jane is,

TJ = ($28,000/$200,000) * 100 = 14%

And Mary pays $10,000 taxes on annual income of $100,000. So, the tax rate for Mary is,

TM = ($10,000/$100,000) * 100 = 10%

Here, we could see that Jane earns more than Mary and the tax rate is more for Jane as compared to Mary. So, according to the government tax policy, the tax rate increases with the increase in income of the people. This type of policy is known as progressive as the higher income people will get hurt just as much by paying high tax rate as the lower income people get hurt by paying low tax rate.

Hence, option (B) is the correct answer.

2. When the increase in oil prices causes the aggregate supply to shift left, the output reduces, which in turn will lead to firing of workers causing high level of unemployment. Also, supply being reduced, demand remaining the same (at least for the first phase), the price level starts rising, leading the economy towards inflationary situation. So, as a result of leftward shift of the aggregate supply curve, both unemployment and inflation rises.

Thus, option (C) is the correct answer.

3. Excise taxes are levied on products which are produced on commercial purpose. Here, Gasoline, Tobacco and Alcohol are all produced to be sold in the market and so all these products are subject to excise duty imposed by government.

Hence, option (C) is the correct answer.

4. One reason of rising inflation as suggested by Economics is high volume of money at hand of the consumers. So, high demand corresponds to high level of prices and so in order to curb the purchasing power of the people of the economy, the government adopts contractionary fiscal policy like increase in tax rate, reduction in government expenditure etc, which leads to shift of the aggregate demand curve towards left.

So, option (B) is the correct answer.

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