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1. Consider the following table, which shows the total amount of taxes paid at different total income levels in a society. For each income level, calculate the effective tax rate. Is this tax system progressive or regressive? Explain.
Total Income Total Taxes Paid
$200,000 $50,000
$100,000 $22,000
$80,000 $16,000
$50,000 $8,000
$40,000 $4,000
$20,000 $1,000
2. There are many perspectives on how to stimulate the economy; consider these two:
a) "Trickle-down" which argues that the benefits of policies (tax cuts, etc.) which positively impact higher-income households and businesses, eventually will trickle down to those in lower income brackets and stimulate the economy.
b) "Trickle-up" which argues that policies (tax cuts, etc.) which positively impact middle and lower-income households will increase aggregate demand because these income classes typically spend more of their income, and will eventually stimulate the economy and benefit all households.
Which do you find to be more effective? Why?
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