Question 1

Income taxes and property taxes generate the highest tax revenue for state and local governments.

Accepted Answer

A) True 
 B)False

Question 2

If transfer payments are included when evaluating tax burdens, then the average tax rate of the poorest quintile of taxpayers would be approximately

Accepted Answer

A) negative 30 percent. 
B) negative 10 percent. 
C) positive 1 percent. 
D) positive 8 percent. 
A) negative 30 percent. 
B) negative 10 percent. 
C) positive 1 percent. 
D) positive 8 percent.

Question 3

List the three most important expenditure programs of the federal government. How do they differ from the three most important expenditure programs of state and local governments? Explain why it makes more sense for the federal government to purchase "national defense" rather than state governments.

Accepted Answer

The three most important expenditure pro

Question 4

Table 12-22  
-Refer to Table 12-22. A lump-sum tax is illustrated by tax

Accepted Answer

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

Question 5

The deadweight loss of an income tax is determined by the

Accepted Answer

A) amount of total tax revenue to the government. 
B) marginal tax rate. 
C) average tax rate. 
D) ability-to-pay principle. 
A) amount of total tax revenue to the government. 
B) marginal tax rate. 
C) average tax rate. 
D) ability-to-pay principle.

Question 6

Special tax treatment given to specific types of behavior are called

Accepted Answer

A) tax avoidance. 
B) tax evasion. 
C) tax loopholes. 
D) tax burden. 
A) tax avoidance. 
B) tax evasion. 
C) tax loopholes. 
D) tax burden.

Question 7

Table 12-6
The table below shows the marginal tax rates for an unmarried taxpayer for various levels of taxable income.  
-Refer to Table 12-6. For this tax schedule, what is the average tax rate for an individual with $280,000 in taxable income?

Accepted Answer

A) 39.9% 
B) 40.2% 
C) 42.7% 
D) 44.8% 
A) 39.9% 
B) 40.2% 
C) 42.7% 
D) 44.8%

Question 8

If a tax generates a reduction in surplus that is exactly offset by the tax revenue collected by the government, the tax does not have a deadweight loss.

Accepted Answer

A) True 
 B)False

Question 9

Many economists believe that the U.S. tax system would be made more efficient if the basis of taxation were changed so that people paid taxes, more so than they do now, based on their

Accepted Answer

A) saving rather than their income. 
B) spending rather than their income. 
C) income rather than their wealth. 
D) wealth rather than their spending. 
A) saving rather than their income. 
B) spending rather than their income. 
C) income rather than their wealth. 
D) wealth rather than their spending.

Question 10

When the marginal tax rate exceeds the average tax rate, the tax is

Accepted Answer

A) proportional. 
B) regressive. 
C) non-egalitarian. 
D) progressive. 
A) proportional. 
B) regressive. 
C) non-egalitarian. 
D) progressive.

Question 11

Pat calculates that for every extra dollar she earns, she owes the government 40 cents. Her total income now is $44,000, on which she pays taxes of $11,000. Determine her average tax rate and her marginal tax rate.

Accepted Answer

A) Her average tax rate is 40 percent and her marginal tax rate is 25 percent. 
B) Her average tax rate is 40 percent and her marginal tax rate is 40 percent. 
C) Her average tax rate is 25 percent and her marginal tax rate is 25 percent. 
D) Her average tax rate is 25 percent and her marginal tax rate is 40 percent. 
A) Her average tax rate is 40 percent and her marginal tax rate is 25 percent. 
B) Her average tax rate is 40 percent and her marginal tax rate is 40 percent. 
C) Her average tax rate is 25 percent and her marginal tax rate is 25 percent. 
D) Her average tax rate is 25 percent and her marginal tax rate is 40 percent.

Question 12

Two families who live in Plains, GA have identical incomes. The Smiths deduct $5,000 from their taxable income for mortgage interest paid during the year. The Jones family lives in an apartment and is not eligible for a mortgage-interest deduction. This situation exemplifies

Accepted Answer

A) an application of the benefits principle of taxation. 
B) a violation of horizontal equity. 
C) a violation of vertical equity. 
D) an application of egalitarian tax rules. 
A) an application of the benefits principle of taxation. 
B) a violation of horizontal equity. 
C) a violation of vertical equity. 
D) an application of egalitarian tax rules.

Question 13

Vertical equity states that taxpayers with a greater ability to pay taxes should

Accepted Answer

A) contribute a decreasing proportion of each increment in income to taxes. 
B) contribute a larger amount than those with a lesser ability to pay. 
C) be less subject to administrative burdens of a tax. 
D) be less subject to tax distortions that lead to deadweight losses. 
A) contribute a decreasing proportion of each increment in income to taxes. 
B) contribute a larger amount than those with a lesser ability to pay. 
C) be less subject to administrative burdens of a tax. 
D) be less subject to tax distortions that lead to deadweight losses.

Question 14

According to the ability-to-pay principle, it is fair for people to pay taxes based on the amount of government services that they receive.

Accepted Answer

A) True 
 B)False

Question 15

​A city finances a performing arts center by adding a $2.75 tax to each ticket sold.This is an example of taxation via the benefits principle.

Accepted Answer

A) True 
 B)False

Question 16

Table 12-20
The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown.  
-Refer to Table 12-20. Which tax schedules are proportional?

Accepted Answer

A) Tax Schedule B only 
B) Tax Schedule B and Tax Schedule C 
C) Tax Schedule D only 
D) Tax Schedule A and Tax Schedule B 
A) Tax Schedule B only 
B) Tax Schedule B and Tax Schedule C 
C) Tax Schedule D only 
D) Tax Schedule A and Tax Schedule B

Question 17

If Mary earns $80,000 in taxable income and pays $40,000 in taxes, her marginal tax rate must be 50 percent.

Accepted Answer

A) True 
 B)False

Question 18

The share of federal government spending on healthcare has risen substantially over time. This is most likely a result of

Accepted Answer

A) medical advances that provide new, better, but often more expensive medical treatments. 
B) a rising population of the elderly in the economy. 
C) health insurance reform that will include government subsidies for health insurance for many low-to-moderate income families. 
D) All of the above are important factors. 
A) medical advances that provide new, better, but often more expensive medical treatments. 
B) a rising population of the elderly in the economy. 
C) health insurance reform that will include government subsidies for health insurance for many low-to-moderate income families. 
D) All of the above are important factors.

Question 19

The administrative burden of complying with tax laws is a cost to the government but not to taxpayers.

Accepted Answer

A) True 
 B)False

Question 20

The typical state spends the most on

Accepted Answer

A) education. 
B) Medicare and Social Security. 
C) highways. 
D) defense. 
A) education. 
B) Medicare and Social Security. 
C) highways. 
D) defense.

Exam 12: The Design of the Tax System

Income taxes and property taxes generate the highest tax revenue for state and local governments.

If transfer payments are included when evaluating tax burdens, then the average tax rate of the poorest quintile of taxpayers would be approximately

Table 12-22 -Refer to Table 12-22. A lump-sum tax is illustrated by tax

The deadweight loss of an income tax is determined by the

Special tax treatment given to specific types of behavior are called

Table 12-6 The table below shows the marginal tax rates for an unmarried taxpayer for various levels of taxable income. -Refer to Table 12-6. For this tax schedule, what is the average tax rate for an individual with $280,000 in taxable income?

If a tax generates a reduction in surplus that is exactly offset by the tax revenue collected by the government, the tax does not have a deadweight loss.

Many economists believe that the U.S. tax system would be made more efficient if the basis of taxation were changed so that people paid taxes, more so than they do now, based on their

When the marginal tax rate exceeds the average tax rate, the tax is

Pat calculates that for every extra dollar she earns, she owes the government 40 cents. Her total income now is $44,000, on which she pays taxes of $11,000. Determine her average tax rate and her marginal tax rate.

Two families who live in Plains, GA have identical incomes. The Smiths deduct $5,000 from their taxable income for mortgage interest paid during the year. The Jones family lives in an apartment and is not eligible for a mortgage-interest deduction. This situation exemplifies

Vertical equity states that taxpayers with a greater ability to pay taxes should

According to the ability-to-pay principle, it is fair for people to pay taxes based on the amount of government services that they receive.

​A city finances a performing arts center by adding a $2.75 tax to each ticket sold.This is an example of taxation via the benefits principle.

Table 12-20 The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. -Refer to Table 12-20. Which tax schedules are proportional?

If Mary earns $80,000 in taxable income and pays $40,000 in taxes, her marginal tax rate must be 50 percent.

The share of federal government spending on healthcare has risen substantially over time. This is most likely a result of

The administrative burden of complying with tax laws is a cost to the government but not to taxpayers.

The typical state spends the most on

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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A city finances a performing arts center by adding a $2.75 tax to each ticket sold.This is an example of taxation via the benefits principle.