Question 1

If the area between the diagonal line of absolute equality and the Lorenz curve is greater for the United States than for Japan,we can conclude that the

Accepted Answer

A) Distribution of income in Japan is closer to being equal than in the United States. 
B) Distribution of income in Japan is as equal as in the United States. 
C) Distribution of income in Japan is less equal than in the United States. 
D) Relative distributions of income in the two countries are the same. 
A) Distribution of income in Japan is closer to being equal than in the United States. 
B) Distribution of income in Japan is as equal as in the United States. 
C) Distribution of income in Japan is less equal than in the United States. 
D) Relative distributions of income in the two countries are the same.

Question 2

Refer to the labor market in Figure 33.5.Suppose that the government imposes a payroll tax on employers in this market.How much will the government collect in tax receipts for every worker hired?

Accepted Answer

A) $10 - $8 = $2 per hour. 
B) $10 - $7 = $3 per hour. 
C) $8 - $7 = $1 per hour. 
D) $7 per hour. 
A) $10 - $8 = $2 per hour. 
B) $10 - $7 = $3 per hour. 
C) $8 - $7 = $1 per hour. 
D) $7 per hour.

Question 3

With a flat tax,

Accepted Answer

A) Vertical inequities cannot occur. 
B) Everyone pays the same amount of absolute tax. 
C) Decisions are based on economic considerations rather than tax incentives. 
D) The government's ability to change the mix of output is increased. 
A) Vertical inequities cannot occur. 
B) Everyone pays the same amount of absolute tax. 
C) Decisions are based on economic considerations rather than tax incentives. 
D) The government's ability to change the mix of output is increased.

Question 4

Assume the marginal tax rate is 10 percent for the first $30,000 of income,15 percent for income between $30,000 and $70,000,and 20 percent for any income over $70,000.If Emily has taxable income equal to $80,000 for the year,what is her tax bill?

Accepted Answer

A) $16,000. 
B) $11,000. 
C) $8,000. 
D) $12,000. 
A) $16,000. 
B) $11,000. 
C) $8,000. 
D) $12,000.

Question 5

A person can have a great deal of wealth but have very little income.

Accepted Answer

A) True 
 B)False

Question 6

If the tax elasticity of supply is 0.6 and tax rates increase by 10 percent,the quantity of labor supplied will

Accepted Answer

A) Increase by 1.67 percent. 
B) Decrease by 1.67 percent. 
C) Increase by 6 percent. 
D) Decrease by 6 percent. 
A) Increase by 1.67 percent. 
B) Decrease by 1.67 percent. 
C) Increase by 6 percent. 
D) Decrease by 6 percent.

Question 7

A 7.25 percent sales tax

Accepted Answer

A) Is a proportional tax because the rate is the same for all income groups. 
B) Is a progressive tax because high-income individuals buy more goods and services than low-income individuals. 
C) Is a regressive tax because poor individuals consume a higher percentage of their income than high-income individuals. 
D) Does not impose an additional tax burden on most individuals because the sales tax is paid entirely by the seller. 
A) Is a proportional tax because the rate is the same for all income groups. 
B) Is a progressive tax because high-income individuals buy more goods and services than low-income individuals. 
C) Is a regressive tax because poor individuals consume a higher percentage of their income than high-income individuals. 
D) Does not impose an additional tax burden on most individuals because the sales tax is paid entirely by the seller.

Question 8

A flat tax

Accepted Answer

A) Encourages economic activity through deductions and credits. 
B) Includes many tax brackets. 
C) Reduces the government's ability to alter the mix of output. 
D) Completely eliminates potential vertical inequities. 
A) Encourages economic activity through deductions and credits. 
B) Includes many tax brackets. 
C) Reduces the government's ability to alter the mix of output. 
D) Completely eliminates potential vertical inequities.

Question 9

The principle of horizontal equity is violated if two people who earn the same amount of income actually pay a different amount in taxes.

Accepted Answer

A) True 
 B)False

Question 10

Assume the marginal tax rate is 12 percent for the first $40,000 of income,28 percent for income between $40,000 and $100,000,and 30 percent for any income over $100,000.If Sarah has taxable income equal to $120,000 for the year,what is her tax bill?

Accepted Answer

A) $27,600. 
B) $33,600. 
C) $34,000. 
D) $36,000. 
A) $27,600. 
B) $33,600. 
C) $34,000. 
D) $36,000.

Question 11

An economy with nominal tax rates significantly higher than effective tax rates has

Accepted Answer

A) Loopholes in the tax code. 
B) A regressive tax system. 
C) A progressive tax system. 
D) Large in-kind benefits. 
A) Loopholes in the tax code. 
B) A regressive tax system. 
C) A progressive tax system. 
D) Large in-kind benefits.

Question 12

Taxes paid divided by total income is the

Accepted Answer

A) Nominal tax rate. 
B) Horizontal tax rate. 
C) Marginal tax rate. 
D) Effective tax rate. 
A) Nominal tax rate. 
B) Horizontal tax rate. 
C) Marginal tax rate. 
D) Effective tax rate.

Question 13

Wealth is measured as

Accepted Answer

A) A flow only. 
B) A stock only. 
C) Both a flow and a stock. 
D) Neither a flow nor a stock. 
A) A flow only. 
B) A stock only. 
C) Both a flow and a stock. 
D) Neither a flow nor a stock.

Question 14

How income is distributed is typically measured using

Accepted Answer

A) In-kind income. 
B) Personal income. 
C) Wealth. 
D) The production of goods and services. 
A) In-kind income. 
B) Personal income. 
C) Wealth. 
D) The production of goods and services.

Question 15

A flat tax is

Accepted Answer

A) A tax system in which tax rates rise as income rises. 
B) A tax system in which tax rates are constant. 
C) A tax system in which tax rates fall as income rises. 
D) The tax rate imposed on the last dollar of income. 
A) A tax system in which tax rates rise as income rises. 
B) A tax system in which tax rates are constant. 
C) A tax system in which tax rates fall as income rises. 
D) The tax rate imposed on the last dollar of income.

Question 16

The Bush tax cuts of 2001-2010 increased education incentives,and as a result,

Accepted Answer

A) New vertical inequities were introduced into the tax system. 
B) Low-income households benefited more than all other households. 
C) College enrollments were expected to increase significantly. 
D) The difference between gross incomes and taxable incomes became smaller. 
A) New vertical inequities were introduced into the tax system. 
B) Low-income households benefited more than all other households. 
C) College enrollments were expected to increase significantly. 
D) The difference between gross incomes and taxable incomes became smaller.

Question 17

Income is measured as

Accepted Answer

A) A flow only. 
B) A stock only. 
C) Both a flow and a stock. 
D) Neither a flow nor a stock. 
A) A flow only. 
B) A stock only. 
C) Both a flow and a stock. 
D) Neither a flow nor a stock.

Question 18

Flat tax critics

Accepted Answer

A) Object to the elimination of tax deductions and credits. 
B) Believe it would reduce vertical inequities. 
C) Believe it would reduce horizontal inequities. 
D) Object to the government control over the mix of output that it would cause. 
A) Object to the elimination of tax deductions and credits. 
B) Believe it would reduce vertical inequities. 
C) Believe it would reduce horizontal inequities. 
D) Object to the government control over the mix of output that it would cause.

Question 19

The taxation principle that says people with higher incomes should pay more in taxes than those with lower incomes is called

Accepted Answer

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

Question 20

If a tax system has no deductions,exemptions,or other loopholes,then the effective tax rate will be

Accepted Answer

A) Greater than the nominal tax rate. 
B) Equal to the nominal tax rate. 
C) Less than the nominal tax rate. 
D) Equal to the vertical tax rate. 
A) Greater than the nominal tax rate. 
B) Equal to the nominal tax rate. 
C) Less than the nominal tax rate. 
D) Equal to the vertical tax rate.

Exam 33: Taxes: Equity Versus Efficiency

If the area between the diagonal line of absolute equality and the Lorenz curve is greater for the United States than for Japan,we can conclude that the

Refer to the labor market in Figure 33.5.Suppose that the government imposes a payroll tax on employers in this market.How much will the government collect in tax receipts for every worker hired?

With a flat tax,

Assume the marginal tax rate is 10 percent for the first $30,000 of income,15 percent for income between $30,000 and $70,000,and 20 percent for any income over $70,000.If Emily has taxable income equal to $80,000 for the year,what is her tax bill?

A person can have a great deal of wealth but have very little income.

If the tax elasticity of supply is 0.6 and tax rates increase by 10 percent,the quantity of labor supplied will

A 7.25 percent sales tax

A flat tax

The principle of horizontal equity is violated if two people who earn the same amount of income actually pay a different amount in taxes.

Assume the marginal tax rate is 12 percent for the first $40,000 of income,28 percent for income between $40,000 and $100,000,and 30 percent for any income over $100,000.If Sarah has taxable income equal to $120,000 for the year,what is her tax bill?

An economy with nominal tax rates significantly higher than effective tax rates has

Taxes paid divided by total income is the

Wealth is measured as

How income is distributed is typically measured using

A flat tax is

The Bush tax cuts of 2001-2010 increased education incentives,and as a result,

Income is measured as

Flat tax critics

The taxation principle that says people with higher incomes should pay more in taxes than those with lower incomes is called

If a tax system has no deductions,exemptions,or other loopholes,then the effective tax rate will be

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Theory Versus Reality

Consumer Choice

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