If the Average Price Level Increases 10 Percent Per Year

question 49

Multiple Choice

If the average price level increases 10 percent per year, and the velocity of money is 2, then the inflation rate is:

• A) 10 percent.
• B) 5 percent.
• C) 2 percent.
• D) 20 percent.

---

Definitions:

Marginal Tax Rate

The rate at which the last dollar of income is taxed, indicating the proportion of any additional dollar of income that will be taken as tax.

Lump-Sum Tax

A tax that is a fixed amount, not dependent on the taxpayer's income level or assets' value.

Average Tax Rate

The fraction of total income that is paid in taxes, calculated by dividing the total taxes paid by the total taxable income.

Ability-To-Pay Principle

A tax theory stating that taxes should be levied according to an individual or entity’s capacity to pay.