Ted Harper's annual income increased from $20,000 to $25,000.If Ted faces a 40 percent effective marginal tax rate,the $5,000 increase in income will expand his disposable income by

Question

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Ted's disposable income increases by the amount of the income increase minus the taxes paid on that increase. With a 40% tax rate, $5,000 x 0.40 = $2,000 is paid in taxes, leaving $3,000 as the increase in disposable income.

Ted Harper's Annual Income Increased from $20,000 to $25,000