1. Chuck, a single taxpayer, earns $75,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. (Use the U.S tax rate schedule.)

1. How much federal tax will he owe?
2. What is his average tax rate?
3. What is his effective tax rate?
4. What is his current marginal tax rate?

------

2. Chuck, a single taxpayer, earns $75,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. (Use the U.S. tax rate schedule.)

1. If Chuck earns an additional $40,000 of taxable income, what is his marginal tax rate on this income?
2. What is his marginal rate if, instead, he had $40,000 of additional deductions?

3. Campbell, a single taxpayer, earns $400,000 in taxable income and $2,000 in interest from an investment in State of New York bonds. (Use the U.S. tax rate schedule.)

1. How much federal tax will she owe?
2. What is her average tax rate?
3. What is her effective tax rate?
4. What is her current marginal tax rate?

4. Campbell, a single taxpayer, earns $400,000 in taxable income and $2,000 in interest from an investment in State of New York bonds. (Use the U.S. tax rate schedule).

1. If Campbell earns an additional $15,000 of taxable income, what is her marginal tax rate on this income?
2. What is her marginal rate if, instead, she had $15,000 of additional deductions?

5. Jorge and Anita, married taxpayers, earn $150,000 in taxable income and $40,000 in interest from an investment in City of Heflin bonds. Using the U.S. tax rate schedule for married filing jointly, how much federal tax will they owe? What is their average tax rate? What is their effective tax rate? What is their current marginal tax rate? (Round your answers to 2 decimal places.)

6. Jorge and Anita, married taxpayers, earn $150,000 in taxable income and $40,000 in interest from an investment in City of Heflin bonds. (Use the U.S. tax rate schedule for married filing jointly).

1. If Jorge and Anita earn an additional $100,000 of taxable income, what is their marginal tax rate on this income?
2. What is their marginal rate if, instead, they report an additional $100,000 in deductions?

7. Scot and Vidia, married taxpayers, earn $240,000 in taxable income and $5,000 in interest from an investment in City of Tampa bonds. Using the U.S. tax rate schedule for married filing jointly, how much federal tax will they owe? What is their average tax rate? What is their effective tax rate? What is their current marginal tax rate? (Round "Average tax rate" & "Effective tax rate" to 2 decimal places.)

8. Scot and Vidia, married taxpayers, earn $240,000 in taxable income and $5,000 in interest from an investment in City of Tampa bonds. (Use the U.S. tax rate schedule for married filing jointly).

1. If Scot and Vidia earn an additional $80,000 of taxable income, what is their marginal tax rate on this income?
2. What is their marginal rate if, instead, they report an additional $80,000 in deductions?

9. Melinda invests $200,000 in a City of Heflin bond that pays 6 percent interest. Alternatively, Melinda could have invested the $200,000 in a bond recently issued by Surething Inc., that pays 8 percent interest and has risk and other nontax characteristics similar to the City of Heflin bond. Assume Melindas marginal tax rate is 25 percent. (Leave no cells blank - be sure to enter "0" wherever required.)

1. What is her after-tax rate of return for the City of Heflin bond?
2. How much explicit tax does Melinda pay on the City of Heflin bond?
3. How much implicit tax does she pay on the City of Heflin bond?
4. How much explicit tax would she have paid on the Surething Inc. bond?
5. What is her after-tax rate of return on the Surething Inc. bond?

10. Hugh has the choice between investing in a City of Heflin bond at 6 percent or investing in a Surething Inc. bond at 9 percent. Assuming that both bonds have the same nontax characteristics and that Hugh has a 40 percent marginal tax rate, in which bond should he invest?

11. Hugh has the choice between investing in a City of Heflin bond at 6 percent or investing in a Surething Inc. bond at 9 percent. Assuming that both bonds have the same nontax characteristics and that Hugh has a 40 percent marginal tax rate, what interest rate does Surething Inc. need to offer to make Hugh indifferent between investing in the two bonds?

12. Fergie has the choice between investing in a State of New York bond at 5 percent and a Surething Inc. bond at 8 percent. Assuming that both bonds have the same nontax characteristics and that Fergie has a 30 percent marginal tax rate, in which bond should she invest?

13. Fergie has the choice between investing in a State of New York bond at 5 percent and a Surething Inc. bond at 8 percent. Assuming that both bonds have the same nontax characteristics and that Fergie has a 30 percent marginal tax rate, what interest rate does the state of New York bond need to offer to make Fergie indifferent between investing in the two bonds? (Do not round intermediate calculations. Round your answer to 1 decimal place.)

14. Given the following tax structure, what minimum tax would need to be assessed on Shameika to make the tax progressive with respect to average tax rates?

Taxpayer	Salary		Muni-Bond Interest		Total Tax
Mihwah	$	10,000	$	10,000	$	600
Shameika	$	50,000	$	30,000		???

15. Given the following tax structure, what minimum tax would need to be assessed on Shameika to make the tax progressive with respect to effective tax rates? (Round your final answer to nearest whole dollar amount.)

Taxpayer	Salary		Muni-Bond Interest		Total Tax
Mihwah	$	10,000	$	10,000	$	600
Shameika	$	50,000	$	30,000		???

16. Song earns $100,000 taxable income as an interior designer and is taxed at an average rate of 20 percent (i.e., $20,000 of tax).

a. If Congress increases the income tax rate such that Songs average tax rate increases from 20 percent to 25 percent, how much more income tax will she pay assuming that the income effect is descriptive? (Round your intermediate calculations and final answer to 2 decimal places.)

b. If the income effect is descriptive, the tax base and the tax collected will increase. TRUE/FALSE

17. Song earns $100,000 taxable income as an interior designer and is taxed at an average rate of 20 percent (i.e., $20,000 of tax). Answer the questions below assuming that Congress increases the income tax rate such that Song's average tax rate increases from 20 percent to 25 percent.

a. What will happen to the governments tax revenues if Song chooses to spend more time pursuing her other passions besides work in response to the tax rate change and therefore earns only $75,000 in taxable income?

• Government's tax revenues would decrease by $1,250

• Government's tax revenues would increase by $1,250

• Government's tax revenues would decrease by $1,500

• Government's tax revenues would increase by $1,500

• Government's tax revenues would remain unchanged

b. What is the term that describes this type of reaction to a tax rate increase?

• Endowment effect

• Price effect

• Budget constraint

• Substitution effect

• Income effect

c. What types of taxpayers are likely to respond in this manner?

• Taxpayers with less disposable income

• Taxpayers with more disposable income

Given the following tax structure,

Taxpayer	Salary		Total Tax
Mae	$	10,000	$	600
Pedro	$	20,000	$	1,500
Venita	$	10,000		???

What tax would need to be assessed on Venita to make the tax horizontally equitable?

Given the following tax structure,

Taxpayer	Salary		Total Tax
Mae	$	10,000	$	600
Pedro	$	20,000		???

a. What is the minimum tax that Pedro should pay to make the tax structure vertically equitable based on the tax rate paid? (Round your final answer to nearest whole dollar amount.)

b. This would result in what type of tax rate structure?

Given the following tax structure,

Taxpayer	Salary		Total Tax
Mae	$	10,000	$	600
Pedro	$	20,000		???

a. What is the minimum tax that Pedro should pay to make the tax structure vertically equitable with respect to the amount of tax paid?

b. This would result in what type of tax rate structure?

18. Congress would like to increase tax revenues by 10 percent. Assume that the average taxpayer in the United States earns $65,000 and pays an average tax rate of 15 percent.

a. If the income effect is in effect for all taxpayers, what average tax rate will result in a 10 percent increase in tax revenues? (Round your answer to 2 decimal places.)

b. This is an example of what type of forecasting? (choose: STATIC/DYNAMIC)