Assume That in Year 1 Your Average Tax Rate Is

question 163

Multiple Choice

Assume that in year 1 your average tax rate is 10 percent on a taxable income of $10,000. If the marginal tax rate on the next $10,000 of taxable income is 15 percent, what will be the average tax rate if your taxable income rises to $20,000?

• A)25 percent.
• B)15 percent.
• C)12.5 percent.
• D)about 14 percent.

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Definitions:

Nominal Interest Rate

The interest rate before adjustments for inflation; the stated or face interest rate on a loan or investment.

Real Rate of Interest

Real Rate of Interest is the interest rate that has been adjusted to remove the effects of inflation, providing a more accurate measure of the cost of borrowing.

Rate of Inflation

This refers to the annual percentage increase in the general price level of goods and services in an economy over a period of time.

Effective Usury Laws

Laws designed to set maximum interest rates that can be charged on loans, to prevent lenders from charging excessively high rates.