Question

Brenda earns $58,000 a year and pays an average annual tax rate of 15%. Instructions: Enter whole numbers in each blank. a. Brenda's disposable income is $. and the amount of tax she pays to the government is $. b. Suppose a recession hits the economy and Brenda's income falls to $44,000 per year due to the fact that she is earning a smaller annual bonus. If she now pays an average annual tax rate of 12%, her disposable income is $ and the amount of tax she pays to the government is $ . c. Brenda's annual salary fell by $ [ and her disposable income fell by $[ . d. In this example, income taxes (Click to select) an automatic stabilizer.

Answer 1

a) Disposable income is income after paying tax. Brenda’s annual income is $58,000 the tax rate is 15%. Thus the amount of tax she paid is $8700. Disposable income is total income- tax amount= $49300.

Answer: Brenda’s disposable income is $49300 and the total amount of tax she pays to the government is $8700.

b) Actual income is $44,000. Tax amount is $5280(12% of $44,000). Disposable income is $38720($44,000-$5280).

Answer: Her disposable income is $38,720 and the amount of tax she pays to the government is $5280.

c. The initial salary$58,000, the new salary is $44,000. Then the income fell by $14000($58000-$44000). The fall in disposable income is initial disposable income minus the new disposable income i.e. 49300-38720=$10580.

Answer: Brenda’s annual salary fell by $14000 and her disposable income fell by $10580.

d) In this example income taxes works as an automatic stabilizer.