Question 1

Deadweight losses arise because a tax causes some individuals to change their behavior.

Accepted Answer

A) True 
 B)False

Question 2

If your income is $40,000 and your income tax liability is $5,000, your marginal tax rate is

Accepted Answer

A) 8 percent. 
B) 12.5 percent. 
C) 20 percent. 
D) unknown.We do not have enough information to answer this question. 
A) 8 percent. 
B) 12.5 percent. 
C) 20 percent. 
D) unknown.We do not have enough information to answer this question.

Question 3

The largest category of federal spending is national defense.

Accepted Answer

A) True 
 B)False

Question 4

If tax revenues from a tax on wine, beer, and hard liquor are used to pay for healthcare expenses related to liver damage, the alcohol tax could be justified using the __________.

Accepted Answer

The answer of If tax revenues from a tax on...

Question 5

Of the following countries, which country's government collects the largest amount of tax revenue as a percentage of that country's total income?

Accepted Answer

A) Denmark 
B) United States 
C) Canada 
D) Greece 
A) Denmark 
B) United States 
C) Canada 
D) Greece

Question 6

When the total surplus lost as a result of a tax is less than the amount of tax revenue collected by the government there is a deadweight loss.

Accepted Answer

A) True 
 B)False

Question 7

The U.S. tax burden is

Accepted Answer

A) about the same as most European countries. 
B) higher than most European countries. 
C) lower than most European countries. 
D) higher than all European countries. 
A) about the same as most European countries. 
B) higher than most European countries. 
C) lower than most European countries. 
D) higher than all European countries.

Question 8

Many economists believe that

Accepted Answer

A) the corporate income tax satisfies the goal of horizontal equity. 
B) the corporate income tax does not distort the incentives of customers. 
C) the corporate income tax is more efficient than the personal income tax. 
D) workers and customers bear much of the burden of the corporate income tax. 
A) the corporate income tax satisfies the goal of horizontal equity. 
B) the corporate income tax does not distort the incentives of customers. 
C) the corporate income tax is more efficient than the personal income tax. 
D) workers and customers bear much of the burden of the corporate income tax.

Question 9

The marginal tax rate for a lump-sum tax

Accepted Answer

A) is always positive. 
B) is always negative. 
C) is zero. 
D) can take on any value but must be greater than the average tax rate. 
A) is always positive. 
B) is always negative. 
C) is zero. 
D) can take on any value but must be greater than the average tax rate.

Question 10

In 2014, what were the two largest sources of federal tax revenues, and what were the two largest expenses of the federal government?

Accepted Answer

In 2014, individual income taxes and soc

Question 11

As tax laws become more complex,

Accepted Answer

A) the administrative burden of taxes will increase. 
B) compliance costs are likely to decrease. 
C) the government will collect more in tax revenue. 
D) the amount of tax revenue lost to tax evasion will decrease. 
A) the administrative burden of taxes will increase. 
B) compliance costs are likely to decrease. 
C) the government will collect more in tax revenue. 
D) the amount of tax revenue lost to tax evasion will decrease.

Question 12

Table 12-10
  
-Refer to Table 12-10. Which plan illustrates a regressive tax?

Accepted Answer

Plan A illustrates a regressiv

Question 13

The marginal tax rate serves as a measure of the extent to which the tax system discourages people from working.

Accepted Answer

A) True 
 B)False

Question 14

The average American pays a higher percent of his income in taxes today than he would have in the late 18th century.

Accepted Answer

A) True 
 B)False

Question 15

Tax incidence refers to

Accepted Answer

A) what product or service the tax is levied on. 
B) who bears the tax burden. 
C) what sector of the economy is most affected by the tax. 
D) the dollar value of the tax revenues. 
A) what product or service the tax is levied on. 
B) who bears the tax burden. 
C) what sector of the economy is most affected by the tax. 
D) the dollar value of the tax revenues.

Question 16

Leonard, Sheldon, Raj, and Penny each like to attend comic-book conventions. The price of a ticket to a convention is $50. Leonard values a ticket at $70, Sheldon at $65, Raj at $60, and Penny at $55. Suppose that if the government taxes tickets at $5 each, the price will rise to $55. A consequence of the tax is that consumer surplus shrinks by

Accepted Answer

A) $50 and tax revenues increase by $20, so there is a deadweight loss of $30. 
B) $30 and tax revenues increase by $20, so there is a deadweight loss of $10. 
C) $20 and tax revenues increase by $20, so there is no deadweight loss. 
D) $50 and tax revenues increase by $20, so there is no deadweight loss. 
A) $50 and tax revenues increase by $20, so there is a deadweight loss of $30. 
B) $30 and tax revenues increase by $20, so there is a deadweight loss of $10. 
C) $20 and tax revenues increase by $20, so there is no deadweight loss. 
D) $50 and tax revenues increase by $20, so there is no deadweight loss.

Question 17

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 18

Revenues from social insurance taxes are earmarked to pay for Social Security and Medicare.

Accepted Answer

A) True 
 B)False

Question 19

Tax evasion is illegal, but tax avoidance is legal.

Accepted Answer

A) True 
 B)False

Question 20

In the 1980s, President Ronald Reagan argued that high tax rates distorted economic incentives to work and save. In the 1990s, President Bill Clinton argued that the rich were not paying their fair share of taxes. Which of the following statements best summarizes the economic theories behind the differing philosophies?

Accepted Answer

A) President Reagan was concerned about vertical equity, whereas President Clinton was concerned about horizontal equity. 
B) President Reagan was concerned about average tax rates, whereas President Clinton was concerned about horizontal equity. 
C) President Reagan was concerned about marginal tax rates, whereas President Clinton was concerned about vertical equity. 
D) President Reagan and President Clinton were both concerned about horizontal equity. 
A) President Reagan was concerned about vertical equity, whereas President Clinton was concerned about horizontal equity. 
B) President Reagan was concerned about average tax rates, whereas President Clinton was concerned about horizontal equity. 
C) President Reagan was concerned about marginal tax rates, whereas President Clinton was concerned about vertical equity. 
D) President Reagan and President Clinton were both concerned about horizontal equity.

Exam 12: The Design of the Tax System

Deadweight losses arise because a tax causes some individuals to change their behavior.

If your income is $40,000 and your income tax liability is $5,000, your marginal tax rate is

The largest category of federal spending is national defense.

If tax revenues from a tax on wine, beer, and hard liquor are used to pay for healthcare expenses related to liver damage, the alcohol tax could be justified using the __________.

Of the following countries, which country's government collects the largest amount of tax revenue as a percentage of that country's total income?

When the total surplus lost as a result of a tax is less than the amount of tax revenue collected by the government there is a deadweight loss.

The U.S. tax burden is

Many economists believe that

The marginal tax rate for a lump-sum tax

In 2014, what were the two largest sources of federal tax revenues, and what were the two largest expenses of the federal government?

As tax laws become more complex,

Table 12-10 -Refer to Table 12-10. Which plan illustrates a regressive tax?

The marginal tax rate serves as a measure of the extent to which the tax system discourages people from working.

The average American pays a higher percent of his income in taxes today than he would have in the late 18th century.

Tax incidence refers to

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.

Revenues from social insurance taxes are earmarked to pay for Social Security and Medicare.

Tax evasion is illegal, but tax avoidance is legal.

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 Nations 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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