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Important microeconomic consequences of inflation include all of the following except: A
Important microeconomic consequences of inflation include all of the following except:
A. Cyclical unemployment.
B. Income effects.
C. Wealth effects.
D. Price effects.
If an engineering professor makes $90000 and pays $6000 in taxes while political science professor makes $50000 and pays $7000 in taxes, this is an example of:
A. A progressive tax system.
B. Vertical inequity.
C. Constant marginal tax rates.
D. Horizontal inequity.
Which of the following in a microeconomic consequences of inflation?
A. Greater unemployment.
B. Money illusion.
C. The wealth effect.
D. All of the above.
If an individual is taxed at a 17 percent rate for each dollar earned, the reference is to the:
A. Marginal tax rate.
B. Nominal tax rate.
C. Average tax rate.
D. Effective tax rate.
Expert Solution
1. The correct option is A: Cyclical unemployment.
Explanation: Cyclical unemployment is the cause of irregular cyclic trends. Cyclical unemployment happens in the recession period when there is no demand for the workforce.
In income, price and wealth effects, the purchasing power is directly influenced due to inflation.
So, cyclical not the consequence of the inflation.
2. The correct option is B. Vertical inequity.
Explanation: Vertical equity is when the high-income earner will pay a higher tax than low- income earner. Whereas, vertical inequity is the opposite in which the low-income earner will pay a higher tax than a high-income earner.
3. The correct option is D. All of the above.
Explanation: The wealth of an individual is directly affected by the inflation rate.
In money illusion, people believe that money has a fixed value with respect to purchasing power irrespective of its real value.
In microeconomics, unemployment is said to have an inverse relationship with inflation.
So, all of the above options are the consequences of inflation in microeconomics.
4. The correct option is A: Marginal tax rate.
Explanation: With the increase in per dollar, the tax rate increases. This is known as the marginal tax rate.
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