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Consider an economy with the following tax brackets. 10% income tax rate for the first $20,000 in earnings 20% income tax rate for earnings between

Consider an economy with the following tax brackets.

  • 10% income tax rate for the first $20,000 in earnings
  • 20% income tax rate for earnings between $20,001 and $40,000
  • 30% income tax rate for earnings between $40,001 and $60,000
  • 40% income tax rate for earning of $60,001 or above

In this economy, a worker earning $60,000 would pay 10% on the first $20,000 earned, 20% on the second $20,000 earned, and 30% on the last $20,000 earned, for a total of $12,000 in income tax.

An advocate of supplyside economics would favor:

a. An increase of the 40% tax rate in the $60,000 and above tax bracket.

b. A reduction of the 40% tax rate in the $60,000 and above tax bracket.

c. issuing a tax rebate check of $500 to all workers in the economy.

d. An increase of the tax rate for all tax brackets.

Now suppose that that minimum wage in this economy is $6.73 an hour. Minimumwage employees working full time earn $14,000 per year, with no additional benefits. The economy also has a universal welfare plan in effect, which pays unemployed individuals $10,000 per year.

Advocates of supplyside economics would argue that minimumwage workers face an implicit marginal tax rate of

a. 30%

b. 70%

c. 40%

d. 20%

e. 10%

.

Now suppose that there is a national debate about which government program is most likely to lead to economic growth.

Which program would an advocate of supplyside economics most likely support?

a. an increase in the minimum wage

b. an increase in welfare benefits

c. job training for minimum wage employees

d. universal health care for all individuals in the economy

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