Question 1

Under the flat tax system, taxpayers have to pay more as their incomes increase.

Accepted Answer

A) True 
 B)False

Question 2

A tax on individuals' incomes is called a(n)

Accepted Answer

A) payroll tax. 
B) earnings tax. 
C) excise tax. 
D) personal income tax. 
E) tariff. 
A) payroll tax. 
B) earnings tax. 
C) excise tax. 
D) personal income tax. 
E) tariff.

Question 3

You can expect to see a higher percentage of a nation's population with low incomes as the percentage of elderly persons increases.

Accepted Answer

A) True 
 B)False

Question 4

Exhibit 14-1  
-If the average tax rate is the same for all levels of income, the tax is called a

Accepted Answer

A) progressive tax. 
B) regressive tax. 
C) sales tax. 
D) proportional tax. 
E) flat tax. 
A) progressive tax. 
B) regressive tax. 
C) sales tax. 
D) proportional tax. 
E) flat tax.

Question 5

Exhibit 14-5  
-Refer to Exhibit 14-5. Which of the following statements is true?

Accepted Answer

A) The Lorenz curve of Urbanal is bowed more than the Lorenz curve of Rural. 
B) The second and third quintiles of Urbanal's population make 52 percent of Urbanal's income. 
C) The fourth quintile of Rural's population makes 65 percent of Rural's income. 
D) The Gini coefficient of Rural is greater than that of Urbanal. 
E) The line of equality of Rural is bowed more than the line of equality of Urbanal. 
A) The Lorenz curve of Urbanal is bowed more than the Lorenz curve of Rural. 
B) The second and third quintiles of Urbanal's population make 52 percent of Urbanal's income. 
C) The fourth quintile of Rural's population makes 65 percent of Rural's income. 
D) The Gini coefficient of Rural is greater than that of Urbanal. 
E) The line of equality of Rural is bowed more than the line of equality of Urbanal.

Question 6

Of the two classes of participants in a market, buyers and sellers, the one who pays most of an excise tax is the one with the greater elasticity.

Accepted Answer

A) True 
 B)False

Question 7

According to economic theory, the personal income tax reduces the amount of income-producing work done in an economy.

Accepted Answer

A) True 
 B)False

Question 8

The Gini coefficient is greatest when complete income equality is attained.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following violates the ability-to-pay principle as defined by the text?

Accepted Answer

A) Progressive income tax 
B) Flat rate income tax 
C) Proportional income tax 
D) A regressive tax that taxes the first $20,000 in income at 20 percent and all income above that at 10 percent 
E) None of the options given violates the ability-to-pay principle because those with higher incomes always pay more. 
A) Progressive income tax 
B) Flat rate income tax 
C) Proportional income tax 
D) A regressive tax that taxes the first $20,000 in income at 20 percent and all income above that at 10 percent 
E) None of the options given violates the ability-to-pay principle because those with higher incomes always pay more.

Question 10

To keep deadweight losses to a minimum, products with high elasticities of supply and demand should be taxed.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following forms of income is not taxed under the personal income tax?

Accepted Answer

A) Inheritance 
B) Capital gains 
C) Salaries 
D) Royalties 
E) Dividends 
A) Inheritance 
B) Capital gains 
C) Salaries 
D) Royalties 
E) Dividends

Question 12

Which of the following are tradeoffs in the design of a tax system?

Accepted Answer

A) Fairness and equity 
B) Equity and corruption 
C) Corruption and efficiency 
D) Equity and efficiency 
E) Taxing one income class versus another income class 
A) Fairness and equity 
B) Equity and corruption 
C) Corruption and efficiency 
D) Equity and efficiency 
E) Taxing one income class versus another income class

Question 13

Which of the following conditions results in the highest deadweight loss from a tax?

Accepted Answer

A) Low price elasticity of demand and low price elasticity of supply 
B) Low price elasticity of demand and high price elasticity of supply 
C) High price elasticity of demand and low price elasticity of supply 
D) High price elasticity of demand and high price elasticity of supply 
E) Price elasticity of demand is equal to price elasticity of supply 
A) Low price elasticity of demand and low price elasticity of supply 
B) Low price elasticity of demand and high price elasticity of supply 
C) High price elasticity of demand and low price elasticity of supply 
D) High price elasticity of demand and high price elasticity of supply 
E) Price elasticity of demand is equal to price elasticity of supply

Question 14

The more price-elastic the demand, the larger the increase in tax revenues resulting from a per-unit tax on a good.

Accepted Answer

A) True 
 B)False

Question 15

The poverty line is three times the amount required to feed a given number of people a nutritionally-adequate diet.

Accepted Answer

A) True 
 B)False

Question 16

If an individual earns an additional $200 and has to pay an additional $25 in income tax, his or her average tax rate is

Accepted Answer

A) 25 percent. 
B) There is not enough information provided to answer this question. 
C) 12.5 percent. 
D) 2.5 percent. 
E) 40 percent. 
A) 25 percent. 
B) There is not enough information provided to answer this question. 
C) 12.5 percent. 
D) 2.5 percent. 
E) 40 percent.

Question 17

Which of the following statements about income distribution in the United States is true?

Accepted Answer

A) There is very little movement of individuals between the different income quintiles. 
B) The degree of income inequality would be less if fewer families split apart. 
C) A family of four with $30,000 in income is considered to have lower income than a family of two with $25,000 in income. 
D) Income generally increases throughout an individual's lifetime. 
E) The distribution of wealth is more equal than the distribution of income. 
A) There is very little movement of individuals between the different income quintiles. 
B) The degree of income inequality would be less if fewer families split apart. 
C) A family of four with $30,000 in income is considered to have lower income than a family of two with $25,000 in income. 
D) Income generally increases throughout an individual's lifetime. 
E) The distribution of wealth is more equal than the distribution of income.

Question 18

The Gini coefficient measures the degree of wage discrimination.

Accepted Answer

A) True 
 B)False

Question 19

Exhibit 14-3  
-Refer to Exhibit 14-3. Calculate the tax if an individual makes a total of $150,000 in income, has deductions of $8,000, and receives an exemption of $2,500 for each of five dependents.

Accepted Answer

$39,550
Taxable income = $150,000 -$8,00

Question 20

The amount of tax an individual pays divided by the individual's total income is the

Accepted Answer

A) approximate tax rate. 
B) marginal tax rate. 
C) net tax rate. 
D) gross tax rate. 
E) average tax rate. 
A) approximate tax rate. 
B) marginal tax rate. 
C) net tax rate. 
D) gross tax rate. 
E) average tax rate.

Exam 14: Taxes, Transfers, and Income Distribution

Under the flat tax system, taxpayers have to pay more as their incomes increase.

A tax on individuals' incomes is called a(n)

You can expect to see a higher percentage of a nation's population with low incomes as the percentage of elderly persons increases.

Exhibit 14-1 -If the average tax rate is the same for all levels of income, the tax is called a

Exhibit 14-5 -Refer to Exhibit 14-5. Which of the following statements is true?

Of the two classes of participants in a market, buyers and sellers, the one who pays most of an excise tax is the one with the greater elasticity.

According to economic theory, the personal income tax reduces the amount of income-producing work done in an economy.

The Gini coefficient is greatest when complete income equality is attained.

Which of the following violates the ability-to-pay principle as defined by the text?

To keep deadweight losses to a minimum, products with high elasticities of supply and demand should be taxed.

Which of the following forms of income is not taxed under the personal income tax?

Which of the following are tradeoffs in the design of a tax system?

Which of the following conditions results in the highest deadweight loss from a tax?

The more price-elastic the demand, the larger the increase in tax revenues resulting from a per-unit tax on a good.

The poverty line is three times the amount required to feed a given number of people a nutritionally-adequate diet.

If an individual earns an additional $200 and has to pay an additional $25 in income tax, his or her average tax rate is

Which of the following statements about income distribution in the United States is true?

The Gini coefficient measures the degree of wage discrimination.

Exhibit 14-3 -Refer to Exhibit 14-3. Calculate the tax if an individual makes a total of $150,000 in income, has deductions of $8,000, and receives an exemption of $2,500 for each of five dependents.

The amount of tax an individual pays divided by the individual's total income is the

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