The Following Questions Refer to the information given below.
Suppose the government implements a negative income tax plan to deal with the poverty problem.The negative income tax rate is set at 50%,and the break-even level of income is set at $5,000.
-If a family earns $2,000 income,their negative income tax subsidy will be
A)$0
B)$1,500
C)$2,500
D)$5,000
E)$7,500

Question

Quizplus · Accepted Answer

The negative income tax subsidy calculation will be as follows:
Break-even income = $5,000
Family income = $2,000
Income below the break-even level = $3,000 ($5,000 - $2,000)
Negative income tax rate = 50%
Therefore, the subsidy will be: 
Subsidy = 50% x $3,000 
Subsidy = $1,500 
Hence, the correct answer is option B.

The Following Questions Refer to the Information Given Below