Average Tax Rate – Principles of Macroeconomics Final Quiz

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Social Security, Average Tax Rate, Taxable Income, Principles of Macroeconomics

The key words in this Macroeconomics course include Social Security, Average Tax Rate, Taxable Income, Several Years, Debt-to-GDP Ratio, Marginal Income, Progressive Income Tax System, Principles of Macroeconomics.


The fear about Social Security is that

in several years, it will be eliminated altogether

in several years, fewer individuals will retire to take advantage of the program

in several years, benefits will be cut by 50 percent

in several years, there will not be enough funds to cover 100 percent of promised benefits

Explanation : The program requires workers to contribute a portion of their earnings into the Social Security Trust Fund with the promise that they will receive these back (including a modest growth rate) upon retirement. The goal of the program is to guarantee that no U.S. worker retires with no retirement income. In 1960 there were more than five workers per beneficiary in the Social Security system. With that number, it wasn’t very difficult to accumulate a large trust fund. But now there are fewer than three workers per beneficiary, and as the baby boomers retire, this number is set to fall to just above two, as indicated by the projections for the years 2030 and 2050.


Use the marginal income tax rates shown here to calculate the average tax rate on an income of $100,000.

Taxable IncomeTax rate
$0–$8,70010%
$8,700–$35,35015%
$35,350–$85,65025%
$85,650–$178,65028%
$178,650–$388,35033%
Over $388,35035%


Average tax rate on $100,000 of income is ____________.

21.46%

28%

24.27%

35%

Explanation : The average tax rate is calculated by first computing the total tax bill, then dividing the tax bill by the taxable income. Since the average tax rate increases with taxable income, this is a progressive income tax system.

The tax due on $100,000 is:
0.10 × $8,700 = $870
+ 0.15 × ($35,350 – $8,700) = $3,997.50
+ 0.25 × ($85,650 – $35,350) = $12,575
+ 0.28 × ($100,000 – $85,650) = $4,018
Total = $21,460.50

The average tax rate on $100,000 is $21,460.50 ÷ $100,000 = 21.46%


Use the marginal income tax rates shown here to calculate the average tax rate on an income of $200,000.

Taxable IncomeTax rate
$0–$8,70010%
$8,700–$35,35015%
$35,350–$85,65025%
$85,650–$178,65028%
$178,650–$388,35033%
Over $388,35035%


Average tax rate on $200,000 of income is ___________.

25.26%

30.50%

35%

33%

Explanation The average tax rate is calculated by first computing the total tax bill, then dividing the tax bill by the taxable income. Since the average tax rate increases with taxable income, this is a progressive income tax system.

The tax due on $200,000 is:
0.10 × $8,700 = $870
+ 0.15 × ($35,350 – $8,700) = $3,997.50
+ 0.25 × ($85,650 – $35,350) = $12,575
+ 0.28 × ($178,650 – $85,650) = $26,040
+ 0.33 × ($200,000 – $178,650) = $7,045.50
Total = $50,528

The average tax rate on $200,000 is $50,528 ÷ $200,000 = 25.26%


Using the data shown in the table below, the debt-to-GDP ratio for Greece in 2001 was _______ and the debt-to-GDP ratio for Greece in 2011 was _________.

20012011
DebtGDPDebtGDP
$134.6 billion$129.8 billion$493.19 billion$289.6 billion

96.4%; 58.7%

1.037%; 1.703%

170.3%; 103.7%

103.7%; 170.3%

Explanation: To calculate the debt-to-GDP ratio divide the debt held by the country by its GDP, then multiply it by 100. In 2001, Greece had a debt-to-GDP ratio of (134.6 ÷ 129.8) × 100 = 103.7%. In 2011, Greece had a debt-to-GDP ratio of (493.19 ÷ 289.6) × 100 = 170.3%.