How Do the High Implicit Marginal Tax Rates That Often

question 35

Multiple Choice

How do the high implicit marginal tax rates that often occur when transfer payments are inversely linked to earnings affect the incentive of poor people to work and earn?

• A) A poor person's incentive to earn is increased.
• B) A poor person's incentive to earn is reduced.
• C) The incentive of the poor to earn is unaffected.
• D) The incentive of the poor to earn reported income is increased, but the incentive to earn unreported income is reduced.

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Definitions:

Direct Labour Cost

The wages and salaries paid to workers who are directly involved in the production of goods or services.

Direct Material Costs

The costs of raw materials that can be directly traced to the production of a specific product.

Direct Material Quantity Variance

The difference between the actual amount of direct materials used and the standard amount expected to be used, multiplied by the standard cost per unit of material.

Actual Quantity Purchased

The true amount of materials or goods that a company buys within a specific time frame, which can be compared to budgeted or planned quantities.