SUGGESTED SOLUTIONS

CHAPTER

13 Role of Government

Section A
  1 A 2 D 3 A 4 B 5 C
  6 D 7 A 8 A 9 D 10 A
11 C 12 A 13 B 14 D 15 C
16 B 17 D 18 C 19 B 20 B

Section B
1 (a) (i) Total direct taxes 5 3.6 1 4.5 1 4.0 5 12.1
(ii) Total indirect taxes 5 2.6 1 3.1 1 2.2 5 7.9
(b) (i) Open market operation
(ii) Legal cash reserve requirement
(iii) Funding

2 (a)
Original tax rate (%) New tax rate (%)
15 15
10  9
11 13
Country A – Proportional tax; Country B – Regressive tax; Country C – Progressive tax

3 (a)
Tax rate (%)
Total taxable income (RM)
Individual A Individual B Individual C
2,000 10 10 20
4,000 10 15 16
6,000 10 20 12
8,000 10 25  8
10,000 10 30  4
(b) Individual A – Proportional; individual B – Progressive; individual C – Regressive
(c) (i) Companies taxes
 Suggested Solutions
2

(ii) Individual income taxes

(iii) Stamp duties

4 (a)
Tax rate (%)
Country X Country Y Country Z
10 15 5
10 11 7.5
10  9 15
(b) Country X – Proportional tax rate
Tax rate

Income

Tax rate is constant as income rises

Country Y – Progressive tax rate

Tax rate

Income

Tax rate increases as income increases

Country Z – Regressive tax rate

Tax rate

Income
Tax rate decreases as income increases

5 (a)
Types of tax
Proportion
Progressive
Proportion
Regressive
Progressive