Merrick earns $122,000 taxable income as an landscape designer and is taxed at an average rate of 20 percent (i.e., $24,400 of tax). Answer the questions below assuming that Congress increases the income tax rate such that Merrick 's average tax rate increases from 20 percent to 25 percent.

a. What will happen to the governments tax revenues if Merrick chooses to spend more time pursuing her other passions besides work in response to the tax rate change and therefore earns only $91,500 in taxable income?

multiple choice 1

• Government's tax revenues would decrease by $1,525

• Government's tax revenues would increase by $1,525

• Government's tax revenues would decrease by $1,775

• Government's tax revenues would increase by $1,775

• Government's tax revenues would remain unchanged