Last Year, Government G Levied a 35% Tax on Individual

question 30

Multiple Choice

Last year, Government G levied a 35% tax on individual income, and Mr. Slate paid $35,000 tax on his $100,000 income. This year, the government increased the tax rate to 40%. Which of the following statements is false?

• A) Based on a static forecast, government G should collect $5,000 additional tax from Mr. Slate this year.
• B) If Mr. Slate took a second job to maintain his after-tax disposable income, his behavior illustrates a substitution effect of the rate increase.
• C) If Mr. Slate took a second job to maintain his after-tax disposable income, government G should collect more than $5,000 additional tax from him this year.
• D) If Mr. Slate sold an income-generating investment and used the money for personal consumption, his behavior illustrates a substitution effect of the rate increase.

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