Question

a) Distinguish between economic and financial capital.

b) Joe Smith earned $50,000 and paid taxes of $10,000. Mary Miller earned $60,000 and paid taxes of $12,000. If these taxes were paid to the same government agency, is the tax on income progressive, regressive, or proportional? Why did you reach this conclusion?

Answer 1

A. Economic capital consists on only those items that a person manufactures by combining the human and natural resources.

While, financial capital includes several types of assets, such as stock, bond's, cash ,accounts receivable. It is all the currency the household sector directly loans to business firms.

B. It is proportional , as in a proportional tax system, all tax payers are required to pay the same percentage of their income in taxes. So , in this, Joe Smith and Marry Miller paying same share of income at all the income levels.