Suppose that in Econland each citizen is taxed on their income at a proportional tax rate of 35%. Also suppose that GDP is currently $1 Million. The government decides to lower the proportional tax ra...
Suppose that in Econland each citizen is taxed on their income at a proportional tax rate of 35%. Also suppose that GDP is currently $1 Million.
The government decides to lower the proportional tax rate to 25%. How much will the economy of Econland have to grow for tax revenue to return to its current level?
30
10
40
50
20
Homework Answers
Answer is option c) = 40
Now current tax revenue = .35* 1 million
= .35*1000,000
= 3,50,000
Now let new GDP level = x
Then .25*X = 3,50,000
So X = 1,400,000
Thus increase in GDP needed = 4,00,000
Thus growth =( 4,00,000/10,00,000)*100
= 40
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