This year, Sue earned $2,000 more than last year. As a result, she received $500 less in government transfers. Therefore, Sue's implicit marginal tax rate is

Question

Quizplus · Accepted Answer

Sue's implicit marginal tax rate can be calculated by dividing the change in government transfers by the change in income.

The change in income is $2,000.

The change in government transfers is -$500 (since she received $500 less).

Therefore, her implicit marginal tax rate is:

(-$500)/($2,000) = -0.25 = -25%

Since her implicit marginal tax rate is negative, it means that for every additional $1 Sue earns, she loses 25 cents in government transfers.

To convert the rate to a positive number, we can take the absolute value, which gives us 25%. Therefore, the answer is B) 25%.

This Year, Sue Earned $2,000 More Than Last Year