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Chapter 7: Problem 14

A tax with an average rate of 20 percent for the rich and 2 percent for the middle class is ______. a) progressive b) regressive c) proportional d) none of these

Short Answer

Expert verified
The short answer is: a) progressive

Step by step solution

01

Compare the tax rates for the rich and middle class

We are given that the average tax rate is 20 percent for the rich and 2 percent for the middle class. Let's compare the tax rates. Since 20 percent is greater than 2 percent, the tax rate is higher for the rich as compared to the middle class.
02

Determine the type of tax system

Now we will determine whether this tax system can be classified as progressive, regressive, or proportional. Comparing the tax rates of the two income groups, we find that the rich pay a higher tax rate than the middle class (20% > 2%). This indicates that the tax rate increases as taxable income increases, which is the definition of a progressive tax system.
03

Select the proper answer

Based on the analysis, the given tax system is a progressive tax system. So the correct answer is: a) progressive

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