Refer to Figure 10-5. Crowding out of firm investment as a result ...

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Refer to Figure 10-5. Crowding out of firm investment as a result of a budget deficit is illustrated by the movement from ________ in the graph above.
 
  A) C to A B) A to B C) B to A D) B to C

Question 2

Britain taxed windows from 1696 until 1851 . Under the 1747-57 tax rates, you would pay no tax if your home had 0  9 windows but if your home had 10  14 windows you would pay a tax of 6 pence per window for every window in your home.
 
  a. In what way is the window tax similar to the U.S. income tax?
  b. In what way is the window tax different from the U.S. income tax?
  c. Do you think from 17471757 the number of new homes with 9 or fewer windows increased from the pre-1747 days? Explain.

[al]

Answer to Question 1

B

Answer to Question 2

a. The income tax and the window tax are both progressive. United States taxpayers with higher incomes pay higher marginal tax rates on their income. Property owners in 18th century Britain with more windows paid higher marginal tax rates on their windows.
b. When United States taxpayers earn more income and move into a higher tax bracket, they pay a higher marginal tax rate on additional income but the tax rate on their other income is unchanged. Consider Exhibit 10.6 in the text. Someone who earned 8,926 would pay 10 of her first 8,925 of income and 15 of her last dollar in taxes. Property owners in Britain faced a very different situation. If they purchased a 10th window, they would pay the 6 pence tax on that 10th window and a 6 pence tax on their first nine windows as well. Economists say that tax systems like the United States income tax have kinks in the tax schedule; tax systems like the window tax have notches.
c. You should expect to find that more houses with nine or fewer windows were built after the imposition of the window tax. Starting in 1747, the 10th window was very expensive. A homeowner would pay no tax with nine windows but a tax of 60 pence (which was equal to five shillings) if the home had 10 .

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TYSM

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