Question 1

The Gini coefficient can take on any value from

Accepted Answer

A) negative infinity to zero. 
B) negative infinity to positive infinity. 
C) -1 to 1. 
D) zero to 1. 
E) zero to positive infinity. 
A) negative infinity to zero. 
B) negative infinity to positive infinity. 
C) -1 to 1. 
D) zero to 1. 
E) zero to positive infinity.

Question 2

The efficiency of a tax system could be measured by observing

Accepted Answer

A) the costs it imposes on taxpayers. 
B) the amount of tax revenues relative to the amount of government spending. 
C) whether the tax burden is distributed equally among taxpayers. 
D) whether taxpayers are happy or not. 
E) whether it is fair for individuals to pay taxes based on the benefits they receive from the government. 
A) the costs it imposes on taxpayers. 
B) the amount of tax revenues relative to the amount of government spending. 
C) whether the tax burden is distributed equally among taxpayers. 
D) whether taxpayers are happy or not. 
E) whether it is fair for individuals to pay taxes based on the benefits they receive from the government.

Question 3

Many welfare programs create a work disincentive because the effective tax rate on additional income is much higher than published income tax rates.

Accepted Answer

A) True 
 B)False

Question 4

Because of work disincentives, government transfer and tax policies have increased the inequality of income in the United States.

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 14-1  
-Refer to Exhibit 14-1. If an individual is earning $38,500 in taxable income, that individual will be able to keep how much of one more dollar earned?

Accepted Answer

A) $.60 
B) $.65 
C) $.55 
D) $.85 
E) $.70 
A) $.60 
B) $.65 
C) $.55 
D) $.85 
E) $.70

Question 6

Which of the following is not a social insurance program?

Accepted Answer

A) Social security 
B) Unemployment insurance 
C) Medicare 
D) Medicaid 
E) Both Medicare and Medicaid 
A) Social security 
B) Unemployment insurance 
C) Medicare 
D) Medicaid 
E) Both Medicare and Medicaid

Question 7

The farther the Lorenz curve bows down away from the line of income equality, the

Accepted Answer

A) greater the inequality of the distribution of income. 
B) more even the income distribution. 
C) more proportional the income distribution. 
D) less likely the economy is to maintain its equilibrium. 
E) greater the need for redistributive taxation. 
A) greater the inequality of the distribution of income. 
B) more even the income distribution. 
C) more proportional the income distribution. 
D) less likely the economy is to maintain its equilibrium. 
E) greater the need for redistributive taxation.

Question 8

Exhibit 14-5  
-A quintile is a group of individuals constituting one-fifth of the population randomly selected in a survey.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is true?

Accepted Answer

A) When the employer writes the check for a payroll tax, the employee pays only a small portion in lost wages. 
B) When the employer writes the check for a payroll tax, the employee pays nothing. 
C) Both employee and employer pay a payroll tax, and their shares do not depend on which party directly pays the government. 
D) Payroll taxes are designed to make employers pay for government programs to aid workers and, in fact, employers bear the full cost of such taxes. 
E) When the employee writes the check for a payroll tax, the employer pays by having to pay higher wages in the amount of the tax. 
A) When the employer writes the check for a payroll tax, the employee pays only a small portion in lost wages. 
B) When the employer writes the check for a payroll tax, the employee pays nothing. 
C) Both employee and employer pay a payroll tax, and their shares do not depend on which party directly pays the government. 
D) Payroll taxes are designed to make employers pay for government programs to aid workers and, in fact, employers bear the full cost of such taxes. 
E) When the employee writes the check for a payroll tax, the employer pays by having to pay higher wages in the amount of the tax.

Question 10

Which of the following is not true of a payroll tax?

Accepted Answer

A) It is the same as personal income tax. 
B) It includes Medicare tax. 
C) It includes Social Security tax. 
D) It includes unemployment tax. 
E) It is a tax based on wages and salary income. 
A) It is the same as personal income tax. 
B) It includes Medicare tax. 
C) It includes Social Security tax. 
D) It includes unemployment tax. 
E) It is a tax based on wages and salary income.

Question 11

Taxes cause deadweight losses because of their effects on individuals' behavior.

Accepted Answer

A) True 
 B)False

Question 12

With income below $10,000, the earned income tax credit makes the effective tax rate equal to

Accepted Answer

A) 40 percent. 
B) 36 percent. 
C) -40 percent. 
D) -36 percent. 
E) 15 percent. 
A) 40 percent. 
B) 36 percent. 
C) -40 percent. 
D) -36 percent. 
E) 15 percent.

Question 13

With a proportional tax, the average tax rate and marginal tax rate are equal.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is not a characteristic of an ideal tax system, according to the text?

Accepted Answer

A) Fairness 
B) Taxing of items with high price elasticities 
C) Low marginal tax rates 
D) Simplicity 
E) High proportion of taxable sums subject to tax 
A) Fairness 
B) Taxing of items with high price elasticities 
C) Low marginal tax rates 
D) Simplicity 
E) High proportion of taxable sums subject to tax

Question 15

The Gini coefficient is computed by

Accepted Answer

A) multiplying the area between the line of equality and the Lorenz curve by the area below the line of equality. 
B) dividing the area between the Lorenz curve and the line of equality by the area below the line of equality. 
C) subtracting the area between the line of equality and the Lorenz curve from the area below the line of equality. 
D) dividing the length of the line of equality by the length of the Lorenz curve. 
E) dividing the area between the Lorenz curve and the line of equality by the area below the Lorenz curve. 
A) multiplying the area between the line of equality and the Lorenz curve by the area below the line of equality. 
B) dividing the area between the Lorenz curve and the line of equality by the area below the line of equality. 
C) subtracting the area between the line of equality and the Lorenz curve from the area below the line of equality. 
D) dividing the length of the line of equality by the length of the Lorenz curve. 
E) dividing the area between the Lorenz curve and the line of equality by the area below the Lorenz curve.

Question 16

The official poverty-line income is adjusted regularly for

Accepted Answer

A) inflation. 
B) increases in health-care costs. 
C) housing costs. 
D) unemployment compensation benefits. 
E) income taxes. 
A) inflation. 
B) increases in health-care costs. 
C) housing costs. 
D) unemployment compensation benefits. 
E) income taxes.

Question 17

A program that transfers income from the young to the old is

Accepted Answer

A) Aid to Families with Dependent Children. 
B) Head Start. 
C) social security. 
D) Medicaid. 
E) the earned income tax credit. 
A) Aid to Families with Dependent Children. 
B) Head Start. 
C) social security. 
D) Medicaid. 
E) the earned income tax credit.

Question 18

The diagram that provides a picture of how income is distributed among members of a population is known as a(n)

Accepted Answer

A) aggregate demand/aggregate supply model. 
B) Laffer curve. 
C) Lindstrom graph. 
D) Lorenz curve. 
E) frequency histogram. 
A) aggregate demand/aggregate supply model. 
B) Laffer curve. 
C) Lindstrom graph. 
D) Lorenz curve. 
E) frequency histogram.

Question 19

When East and West Germany united, the distribution of income for the unified nation became

Accepted Answer

A) less equal than that of either East or West Germany. 
B) more equal than that of East Germany but less equal than that of West Germany. 
C) more equal than that of either East or West Germany. 
D) less equal than that of East Germany but more equal than that of West Germany. 
E) impossible to measure. 
A) less equal than that of either East or West Germany. 
B) more equal than that of East Germany but less equal than that of West Germany. 
C) more equal than that of either East or West Germany. 
D) less equal than that of East Germany but more equal than that of West Germany. 
E) impossible to measure.

Question 20

Which of the following statements is true?

Accepted Answer

A) Redistribution of income through taxation results in greater income for everyone. 
B) There is no tradeoff between efficiency and equity. 
C) If taxes are so high that people work a lot less, the redistribution of income could make everyone worse off. 
D) The pursuit of greater equity through taxation and redistribution may promote efficiency by making everyone happier. 
E) Only the rich are negatively affected by very high tax rates. 
A) Redistribution of income through taxation results in greater income for everyone. 
B) There is no tradeoff between efficiency and equity. 
C) If taxes are so high that people work a lot less, the redistribution of income could make everyone worse off. 
D) The pursuit of greater equity through taxation and redistribution may promote efficiency by making everyone happier. 
E) Only the rich are negatively affected by very high tax rates.

Exam 14: Taxes, Transfers, and Income Distribution

The Gini coefficient can take on any value from

The efficiency of a tax system could be measured by observing

Many welfare programs create a work disincentive because the effective tax rate on additional income is much higher than published income tax rates.

Because of work disincentives, government transfer and tax policies have increased the inequality of income in the United States.

Exhibit 14-1 -Refer to Exhibit 14-1. If an individual is earning $38,500 in taxable income, that individual will be able to keep how much of one more dollar earned?

Which of the following is not a social insurance program?

The farther the Lorenz curve bows down away from the line of income equality, the

Exhibit 14-5 -A quintile is a group of individuals constituting one-fifth of the population randomly selected in a survey.

Which of the following statements is true?

Which of the following is not true of a payroll tax?

Taxes cause deadweight losses because of their effects on individuals' behavior.

With income below $10,000, the earned income tax credit makes the effective tax rate equal to

With a proportional tax, the average tax rate and marginal tax rate are equal.

Which of the following is not a characteristic of an ideal tax system, according to the text?

The Gini coefficient is computed by

The official poverty-line income is adjusted regularly for

A program that transfers income from the young to the old is

The diagram that provides a picture of how income is distributed among members of a population is known as a(n)

When East and West Germany united, the distribution of income for the unified nation became

Which of the following statements is true?

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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