Question 1

The effective tax rate is

Accepted Answer

A) Equal to the taxes paid divided by taxable income. 
B) The percentage of tax payable on the last dollar of income received. 
C) Never higher than the nominal tax rate. 
D) Always equal to the marginal tax rate. 
A) Equal to the taxes paid divided by taxable income. 
B) The percentage of tax payable on the last dollar of income received. 
C) Never higher than the nominal tax rate. 
D) Always equal to the marginal tax rate.

Question 2

If a greater portion of income is distributed to those in the highest income quintile,the

Accepted Answer

A) Lorenz curve is a straight line. 
B) Line of equality sags below the Lorenz curve. 
C) Lorenz curve sags below the diagonal line of absolute equality. 
D) Gini coefficient is less than zero. 
A) Lorenz curve is a straight line. 
B) Line of equality sags below the Lorenz curve. 
C) Lorenz curve sags below the diagonal line of absolute equality. 
D) Gini coefficient is less than zero.

Question 3

Which of the following is an example of an indirect income transfer?

Accepted Answer

A) Public schools. 
B) Social Security payments. 
C) Unemployment benefits. 
D) Welfare benefits. 
A) Public schools. 
B) Social Security payments. 
C) Unemployment benefits. 
D) Welfare benefits.

Question 4

In general,state and local taxes are

Accepted Answer

A) Progressive. 
B) Proportional. 
C) Flat. 
D) Regressive. 
A) Progressive. 
B) Proportional. 
C) Flat. 
D) Regressive.

Question 5

Compute the tax rates for the three taxpayers shown in Table 33.1.Then use the table to answer the indicated question. $\begin{array}{|c|r|r|r|r|r|}
\hline \text { Taxpayer } & \begin{array}{c}
\text { Income } \
\text { (Dollars) }
\end{array} & \begin{array}{c}
\text { Taxable } \
\text { Income } \
\text { (Dollars) }
\end{array} & \begin{array}{c}
\text { Taxes Paid } \
\text { (Dollars) }
\end{array} & \begin{array}{c}
\text { Effective Tax } \
\text { Rate(Percent) }
\end{array} & \begin{array}{c}
\text { Nominal Tax } \
\text { Rate(Percent) }
\end{array} \
\hline 1 & \$ 200,000 & \$ 100,000 & \$ 6,000 & \% & \% \
\hline 2 & 100,000 & 80,000 & 8,000 & \% & \% \
\hline 3 & 60,000 & 48,000 & 12,000 & \% & \% \
\hline
\end{array}$
 In Table 33.1,the effective tax rate for taxpayer 3 is

Accepted Answer

A) 5.0 percent. 
B) 8.0 percent. 
C) 20.0 percent. 
D) 25.0 percent. 
A) 5.0 percent. 
B) 8.0 percent. 
C) 20.0 percent. 
D) 25.0 percent.

Question 6

Which of the following taxes is most likely to reduce inequity?

Accepted Answer

A) A local property tax. 
B) The federal income tax. 
C) A gasoline tax. 
D) A sales tax. 
A) A local property tax. 
B) The federal income tax. 
C) A gasoline tax. 
D) A sales tax.

Question 7

The fact that landlords are able to pass the majority,but not all,of the burden of property taxes on to renters suggests that the price elasticity of demand for apartments is

Accepted Answer

A) Elastic. 
B) Inelastic. 
C) Perfectly elastic. 
D) Perfectly inelastic. 
A) Elastic. 
B) Inelastic. 
C) Perfectly elastic. 
D) Perfectly inelastic.

Question 8

A graphic illustration of the cumulative size distribution of income is known as the

Accepted Answer

A) Size distribution of income. 
B) Okun curve. 
C) Lorenz curve. 
D) Gini coefficient. 
A) Size distribution of income. 
B) Okun curve. 
C) Lorenz curve. 
D) Gini coefficient.

Question 9

Figure 33.2 illustrates Lorenz curves for four different economies.For which economy would lower-income families receive the largest share of total income?

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
A) A. 
B) B. 
C) C. 
D) D.

Question 10

In making comparisons of personal income among countries,care must be exercised because in poor countries much of what is produced does not pass through markets and thus does not get counted in the nation's income.

Accepted Answer

A) True 
 B)False

Question 11

The changes contained in the Tax Relief Act of 2001 included

Accepted Answer

A) Narrowing the tax base. 
B) New loopholes to encourage education 
C) A partial shift from corporate to personal taxes. 
D) More tax brackets to increase vertical equity. 
A) Narrowing the tax base. 
B) New loopholes to encourage education 
C) A partial shift from corporate to personal taxes. 
D) More tax brackets to increase vertical equity.

Question 12

In-kind benefits are a way of correcting

Accepted Answer

A) Market power. 
B) Government failure. 
C) Natural monopoly. 
D) Inequity. 
A) Market power. 
B) Government failure. 
C) Natural monopoly. 
D) Inequity.

Question 13

The taxation principle that says people with equal incomes should pay equal taxes is called

Accepted Answer

A) Horizontal equity. 
B) A progressive tax system. 
C) A regressive tax system. 
D) Vertical equity. 
A) Horizontal equity. 
B) A progressive tax system. 
C) A regressive tax system. 
D) Vertical equity.

Question 14

Government attempts to create a more equitable income distribution by increasing marginal tax rates may do all of the following except

Accepted Answer

A) Reduce output. 
B) Increase unemployment. 
C) Reduce government tax receipts. 
D) Increase work effort. 
A) Reduce output. 
B) Increase unemployment. 
C) Reduce government tax receipts. 
D) Increase work effort.

Question 15

Refer to the labor market in Figure 33.5.Suppose that the government imposes a payroll tax on employers in this market.How much of the tax burden will the employers actually pay?

Accepted Answer

A) $10 - $8 = $2 per hour. 
B) $10 - $7 = $3 per hour. 
C) $8 - $7 = $1 per hour. 
D) None.The employers will pass the entire burden onto the workers. 
A) $10 - $8 = $2 per hour. 
B) $10 - $7 = $3 per hour. 
C) $8 - $7 = $1 per hour. 
D) None.The employers will pass the entire burden onto the workers.

Question 16

Figure 33.3 illustrate four different Lorenz curves.Assume Brazil has a larger Gini coefficient than the United States.If the income distribution for the United States is represented by curve C,which curve would must represent the income distribution for Brazil?

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
A) A. 
B) B. 
C) C. 
D) D.

Question 17

A payroll tax

Accepted Answer

A) Shifts the labor supply curve to the right. 
B) Shifts the labor demand curve to the right. 
C) Causes the net wage to increase. 
D) Increases the nominal cost of labor. 
A) Shifts the labor supply curve to the right. 
B) Shifts the labor demand curve to the right. 
C) Causes the net wage to increase. 
D) Increases the nominal cost of labor.

Question 18

Since the current tax system is fairly ineffective at redistributing income,some people think this indicates

Accepted Answer

A) Government failure. 
B) A problem with externalities. 
C) Market failure. 
D) A negative Gini coefficient. 
A) Government failure. 
B) A problem with externalities. 
C) Market failure. 
D) A negative Gini coefficient.

Question 19

The flat tax was originally proposed by

Accepted Answer

A) Bill Clinton. 
B) Ronald Reagan. 
C) Milton Friedman. 
D) Paul Romer. 
A) Bill Clinton. 
B) Ronald Reagan. 
C) Milton Friedman. 
D) Paul Romer.

Question 20

Public education is an in-kind benefit.

Accepted Answer

A) True 
 B)False

Exam 33: Taxes: Equity Versus Efficiency

The effective tax rate is

If a greater portion of income is distributed to those in the highest income quintile,the

Which of the following is an example of an indirect income transfer?

In general,state and local taxes are

Which of the following taxes is most likely to reduce inequity?

The fact that landlords are able to pass the majority,but not all,of the burden of property taxes on to renters suggests that the price elasticity of demand for apartments is

A graphic illustration of the cumulative size distribution of income is known as the

Figure 33.2 illustrates Lorenz curves for four different economies.For which economy would lower-income families receive the largest share of total income?

In making comparisons of personal income among countries,care must be exercised because in poor countries much of what is produced does not pass through markets and thus does not get counted in the nation's income.

The changes contained in the Tax Relief Act of 2001 included

In-kind benefits are a way of correcting

The taxation principle that says people with equal incomes should pay equal taxes is called

Government attempts to create a more equitable income distribution by increasing marginal tax rates may do all of the following except

Refer to the labor market in Figure 33.5.Suppose that the government imposes a payroll tax on employers in this market.How much of the tax burden will the employers actually pay?

Figure 33.3 illustrate four different Lorenz curves.Assume Brazil has a larger Gini coefficient than the United States.If the income distribution for the United States is represented by curve C,which curve would must represent the income distribution for Brazil?

A payroll tax

Since the current tax system is fairly ineffective at redistributing income,some people think this indicates

The flat tax was originally proposed by

Public education is an in-kind benefit.

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Aggregate Demand

Self-Adjustment or Instability

Fiscal Policy

Deficits and Debt

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

Elasticity

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Financial Markets

Transfer Payments: Welfare and Social Security

International Trade

International Finance

Global Poverty

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