Scenario 20-2 Suppose That a Society Is Made Up of Five Families

question 85

Multiple Choice

Scenario 20-2
Suppose that a society is made up of five families whose incomes are as follows:
​
$120,000; $90,000; $30,000; $30,000; and $18,000.
​
The federal government is considering two potential income tax plans:
​
Plan A is a negative income tax plan where the taxes owed equal 1/3 of income minus $20,000.
​
Plan B is a two-tiered plan where families earning less than $35,000 pay no income tax and families earning more than $35,000 pay 10% of their income in taxes. The income tax revenue collected from those families earning over $35,000 is then redistributed equally to those families earning less than $35,000.
​
-Refer to Scenario 20-2. Assuming that utility is directly proportional to the cash value of after-tax income, which government policy would an advocate of libertarianism prefer?

• A)Neither Plan A nor Plan B because any plan that forcibly redistributes income is against the philosophy
• B)Only Plan A
• C)Only Plan B
• D)Either Plan A or Plan B

---

Definitions:

Spot Exchange Rate

The current exchange rate at which one currency can be exchanged for another for immediate delivery.

Risk-free Rates

Risk-free Rates represent the return on investment of an absolutely safe asset, with no risk of financial loss, typically exemplified by treasury bills of a stable government.

Spot Exchange Rate

The existing exchange value for immediate buying or selling of a currency.

Futures Price

The agreed-upon price for the future delivery of a particular commodity, financial instrument, or currency.