What Is the Difference Between the Average and Marginal Tax

question 37

Multiple Choice

What is the difference between the average and marginal tax rates' effects on the labour supply?

• A)An increase in the average tax rate will increase labour supply,but an increase in the marginal tax rate will decrease labour supply.
• B)An increase in the average tax rate will decrease labour supply,but a decrease in the marginal tax rate will decrease labour supply.
• C)There is no difference.An increase in the average tax rate and the marginal tax rate will increase labour supply.
• D)There is no difference.An increase in the average tax rate and the marginal tax rate will decrease labour supply.

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Definitions:

GDP Deflator

An index that measures the level of prices of all new, domestically produced, final goods and services in an economy.

Wages

Payments made to employees based on the hours worked or the output produced; it is the price of labor.

Salaries

Fixed regular payments made by employers to employees, typically on a monthly or biweekly basis, in exchange for the professional services rendered.

GDP

The Gross Domestic Product calculates the full monetary or market price of all the finished commodities and amenities created within a country for a particular time window.