ECON 210 Midterm 3 SG (Quizzes 6-7, hw 8-9)

3. Refer to the diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (3) might represent:

ans. government salaries paid to school teachers. note: see (3). if you think about it, the "resource market is given back to the people for the taxes money (people=households) so in the example the salary (or wages) given to working teachers is what can be given to the resource market. the resource is the teacher, and they give their services to businesses and people/households.

7. Refer to the table, in which the values for columns (2) through (5) are in acres. If the relevant columns are (1), (2), and (3), land rent will be:

ans. $200 per acre.

9. Suppose that interest payments are $140 per year on a $1,000 loan and $1,188 per year on a $8,485 loan. The interest rates on the two loans are:

ans. 14 percent on both loans. formula: taxable payment/total loan amount=ATR (ie. the % of the loan to be paid)

10. The data represent a personal income tax schedule. Answer the question on the basis of this information. Refer to the table. If your taxable income is $8,000, your average tax rate is:

ans. 25 percent and the marginal rate on additional income is 40 percent. note: think of the equations. also look at $8000 as the main # to look at. average tax rate=total tax payment/taxable income x 100% marginal rate= marginal total tax payment/marginal (extra) taxable income x 100% ATR=2000/8000 x 100%=25% Marginal taxable income=8000-6000=2000 marginal total tax payment=2000-1200=800 MR=800/2000 x 100%= 40%

2. Which of the following statements is correct?

ans. Economic rent is a price paid for land resources whose supply is perfectly inelastic.

5. The rent paid for the pasture land used to graze cattle would increase if:

ans. any of the above occurred. (so all the answers) -oil deposits were discovered on the land. -the productivity of the land increased. -people decided to consume more beef.

5. As a proportion of domestic output, taxes in the United States:

ans. are lower than in most other industrially advanced countries. note: think about bar graph/histogram of the world's countries, the higher the taxes the more free stuff, and the more reliance on the gov't (in most industrialized advanced countries) (ie. communism). middle range is preferred and is where the US is at, and lowest taxes has the worst security and least amount of free stuff (ex. mexico).

6. Refer to the diagrams. Assume that only wheat can be grown on the three grades of land shown in Figures a, b, and c. Also assume that identical amounts of labor, capital, and other needed inputs are used in farming each grade of land. On the basis of these three figures we:

ans. can say that the land in Figure c is most productive.

2. Refer to the diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (2) might represent:

ans. corporate income tax payments. note: see (2). think about it. The gov't demands taxes from everyone. but for businesses they have a bigger tax: the "corporate income tax" b/c they are a corporation.

8. The price paid for the use of land declines as more land is brought into use. As a result the:

ans. demand curve for land is downsloping.

1. Refer to the diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (1) might represent:

ans. government provision of highways for business truck transportation. note: look at (1) arrow. if you think about it the gov't gives stuff back to businesses the question is what. To the gov't they get taxes, to the people they get stuff and wages for staff.

Hw 8: Suppose that the demand for loanable funds for car loans in the Milwaukee area is $10 million permonth at an interest rate of 10 percent per year, $11 million at an interest rate of 9 percent per year,$12 million at an interest rate of 8 percent per year, and so on. a. If the supply of loanable funds is fixed at $15 million, what will be the equilibrium interest rate? b. If the government imposes a usury law and says that car loans cannot exceed 3 percent per year,how big will the monthly shortage (or excess demand) for car loans be? c. What if the usury limit is raised to 7 percent per year? ************************************************************ 2. Suppose that the interest rate is 4 percent. What is the future value of $100 four years from now? How much of the future value is total interest? formula to use: Total Interest = Future Value - Initial Value

Chart 1: Interst rate: Demand for LF Supplyfor LF 10% $10 million $15 million 9% $11 mill. $15 million 8% $12 mill. $15 million 7% $13 mill. $15 million 6% $14 mill. $15 million 5% $15 mill. $15 million 4% $16 mill. $15 million 3% $17 mill. $15 million 2% $18 mill. $15 million 1% $19 mill. $15 million a. ans. the market eq. point is where supply=demand, ie. $15 mill. for both. and the interest rate is 5% b. here look at the 3% section....bc if tax rate is lower than the market eq. point that is the price we need to do. c. since we are allowed to go to 7% in order to have the best options, we would still want to stick with the Market eq point to prevent shortage/surplus. ******************************************** Chart 2 for q2: Beginning/value | yrly interst | future value yr 1 100 _____________ _________ yr 2 _______________ _____________ _________ yr 3 _______________ _____________ _________ yr 4 _______________ _____________ _________ Formula needed: total interest=future value-initial value beg. value x 0.04=yrly interest. Future value= beg. value+yrly interest -the need is to figure up the total interest and the rest of the numbers.

10. Refer to the above diagram. If the supply of loanable funds is S1 and the demand for loanable funds is D1, the equilibrium interest rate and quantity of funds borrowed will be:

F and A. Note: notice where the lines intersect for the question.

4. The total amount of U.S. tax revenue needed to finance the public sector:

ans. is larger today, as a percentage of total output, than in 1960. Note: in the lecture slides, over time taxes got higher b/c more people are in country now then there used to be in 1960s, thus with more people, more teachers, police, etc are needed to support them all so higher taxes pays for the "free" resources given back to all the people. (not really free, it was from taxes).

6. The largest source of tax revenue for the U.S. Federal government is:

ans. personal income taxes. note: think of the pie chart that shows around 43% of taxes come from personal income.

7. The three most important sources of Federal tax revenue in order of descending importance are:

ans. personal income, payroll, and corporate income taxes. (top 3 types) From most to least. Note: property taxes is done by local gov't not from the FEDERAL gov't.

8. Which of the following is not an important source of revenue for the Federal government?

ans. property taxes note: property taxes are done by local gov't not by federal.

9. A progressive tax is such that:

ans. tax rates are higher the greater one's income. note: think about it. progressive tax is income=high, taxes=high. regressive tax=high income, taxes=low. proportional tax is the same percent no matter the income.

4. The demand for farmland will increase if:

ans. technological advances make land more productive. note: think about it, demand for anything (land included) increases when things make it look more attractive and things are added to it (like tech making the land be more productive).

1. Economic or pure rent is:

ans. the price paid for the use of land and other nonreproducible resources. -note: it's a definition type of question.

3. Refer to the diagram. Land:

ans. would be a free resource if demand is D4 or less. note: the price at D4 is the lowest price (at $0=free) while the others do not fit the question.

Hw9: 1. Suppose a tax is such that an individual with an income of $10,000 pays $2000 oftax, a person with an income of $20,000 pays $3000 of tax, a person with anincome of $30,000 pays $4000 of tax. What is each person's average tax rate? Isthis tax regressive, proportional, or progressive?

income taxes interest rate (tax/income x 100) 10,000 2000 20% 20,000 3000 15% 30,000 4000 13.3% Type of tax rate is regressive b/c as income increases taxes decrease.

Quiz 6

q10

Quiz 7: (how gov't & taxes work)

q10