What is the difference between a marginal tax rate and an average tax rate? Which is more important in determining the impact of the tax system on economic behavior?
What will be an ideal response?
A marginal tax rate is the fraction of each additional dollar that is paid in taxes. An average tax rate is the fraction of all income that is paid in taxes. Because people make their decisions by comparing marginal costs to marginal benefits, the marginal tax rate plays a bigger role than the average tax rate in influencing economic behavior. For example, when contemplating whether or not to work an extra hour, a person will make the decision based on the after-tax wage earned from working the last hour, which is found by multiplying the marginal tax rate by the wage rate and subtracting the result from the wage rate.
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Higher prices lead to higher levels of real wealth
Indicate whether the statement is true or false
The collapse of one bank might lead easily to the failure of several others, because ________
A) depositors cannot trust each other to keep their money in the bank B) deposit insurance renders all banks equally fragile C) no bank can survive when its competitors cease to operate D) government regulators will step in to punish any bank suspected of poor management