1. Let the (pre-tax) price level P equal 1. Let W denote the nominal wage rate and L denote the number of hours worked. Suppose the income tax rate is th (a) Suppose that L equals 100. Calculate after-tax income (after-income tax income). (b) Suppose the sales tax rate (the tax rate on consumption) is denoted to . Suppose that, with the pre-sales tax P equal to 1, the price of goods equals (1+ tc). Calculate after-tax real (labour) income (this after-tax variable depends on both tax rates). Explain, in words, what this after-tax real income variable measures.

1. Let the (pre-tax) price level P equal 1. Let W denote the nominal wage rate and L denote the number of hours worked. Suppose the income tax rate is th (a) Suppose that L equals 100. Calculate after-tax income (after-income tax income). (b) Suppose the sales tax rate (the tax rate on consumption) is denoted to . Suppose that, with the pre-sales tax P equal to 1, the price of goods equals (1+ tc). Calculate after-tax real (labour) income (this after-tax variable depends on both tax rates). Explain, in words, what this after-tax real income variable measures.

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter13: Measuring The Economy's Performance

Section13.1: National Income Accounting

Problem 5R

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