Question 1

The payroll tax appears to be a proportional tax. In reality, it is

Accepted Answer

A) highly progressive. 
B) actually proportional. 
C) highly regressive. 
D) regressive on low-income persons and progressive on high-income persons. 
A) highly progressive. 
B) actually proportional. 
C) highly regressive. 
D) regressive on low-income persons and progressive on high-income persons.

Question 2

Taxation alters the behavior patterns of individuals.

Accepted Answer

A) True 
 B)False

Question 3

Vertical equity refers to the idea that

Accepted Answer

A) people with greater ability to pay should pay more. 
B) people who are situated differently should pay differently but in a manner deemed fair by society. 
C) people who are situated equally should pay equally. 
D) the people who derive the benefits from services should be the ones who pay for the services, provided they have the ability to pay. 
A) people with greater ability to pay should pay more. 
B) people who are situated differently should pay differently but in a manner deemed fair by society. 
C) people who are situated equally should pay equally. 
D) the people who derive the benefits from services should be the ones who pay for the services, provided they have the ability to pay.

Question 4

Which of the following is not true?

Accepted Answer

A) George H.W. Bush won reelection after agreeing to a small tax increase as part of a political compromise. 
B) George W. Bush won election after claiming tax cuts would pay for themselves. 
C) Ronald Reagan claimed tax cuts would spur economic gains that would increase tax revenues before the tax cuts led to significantly lower revenues. 
D) After Bill Clinton raised taxes on upper income individuals to reduce federal budget deficits his party lost heavily in the following congressional elections. 
A) George H.W. Bush won reelection after agreeing to a small tax increase as part of a political compromise. 
B) George W. Bush won election after claiming tax cuts would pay for themselves. 
C) Ronald Reagan claimed tax cuts would spur economic gains that would increase tax revenues before the tax cuts led to significantly lower revenues. 
D) After Bill Clinton raised taxes on upper income individuals to reduce federal budget deficits his party lost heavily in the following congressional elections.

Question 5

Some enterprising individuals produce and sell alcoholic beverages without collecting or paying legally required taxes. These "moonshiners" often have to hide their production facilities and hire fast driving delivery personnel to avoid various authorities. These moonshiners

Accepted Answer

A) are taking advantage of obvious loopholes in the tax rules. 
B) are making the alcohol taxes more regressive by altering who pays the taxes. 
C) are indicative of the tax's excess burden even if their actions may reduce excess burden relative to no moonshining. 
D) are able to avoid the tax burdens on the moonshined alcohol assuming they are not caught and fined by the authorities. 
A) are taking advantage of obvious loopholes in the tax rules. 
B) are making the alcohol taxes more regressive by altering who pays the taxes. 
C) are indicative of the tax's excess burden even if their actions may reduce excess burden relative to no moonshining. 
D) are able to avoid the tax burdens on the moonshined alcohol assuming they are not caught and fined by the authorities.

Question 6

A tax loophole is

Accepted Answer

A) an illegal method by which individuals or corporations avoid paying the taxes they legally owe. 
B) a provision in the tax code that allows individuals or corporations to reduce their tax burdens legally by meeting certain conditions. 
C) a tax surcharge on incomes within certain ranges. 
D) a provision in the tax code that allows individuals or corporations to shift the economic incidence of a particular tax on to someone else. 
A) an illegal method by which individuals or corporations avoid paying the taxes they legally owe. 
B) a provision in the tax code that allows individuals or corporations to reduce their tax burdens legally by meeting certain conditions. 
C) a tax surcharge on incomes within certain ranges. 
D) a provision in the tax code that allows individuals or corporations to shift the economic incidence of a particular tax on to someone else.

Question 7

The payroll tax system is a proportional tax for all income earners.

Accepted Answer

A) True 
 B)False

Question 8

Existing loopholes erode the progressivity of the U.S. tax system.

Accepted Answer

A) True 
 B)False

Question 9

Vertical equity refers to the notion that equally situated individuals should be taxed equally.

Accepted Answer

A) True 
 B)False

Question 10

"People who make more money should pay higher taxes" is an example of

Accepted Answer

A) the benefits principle. 
B) horizontal equity. 
C) vertical efficiency. 
D) the ability-to-pay principle. 
A) the benefits principle. 
B) horizontal equity. 
C) vertical efficiency. 
D) the ability-to-pay principle.

Question 11

What is personal income tax? On which principle does the federal government levy this tax?

Accepted Answer

The personal income tax is a tax levied

Question 12

Many environmentalists have advocated a substantial increase in the gasoline tax to cut down the federal deficit and to reduce pollution due to auto emissions. Such a tax increase would be devastating to people who commute significant distances to work. In fact, it would provide an incentive to relocate closer to work or change jobs. Economists refer to such effects of taxes as the

Accepted Answer

A) burden of a tax. 
B) regressive incidence of a tax. 
C) incidence of a tax. 
D) excess burden of a tax. 
A) burden of a tax. 
B) regressive incidence of a tax. 
C) incidence of a tax. 
D) excess burden of a tax.

Question 13

The federal government receives most of its revenues from

Accepted Answer

A) personal income taxes. 
B) property taxes. 
C) corporate taxes. 
D) excise taxes. 
A) personal income taxes. 
B) property taxes. 
C) corporate taxes. 
D) excise taxes.

Question 14

Cities and towns mainly rely for revenue on

Accepted Answer

A) property taxes. 
B) income taxes. 
C) excise taxes. 
D) payroll taxes. 
A) property taxes. 
B) income taxes. 
C) excise taxes. 
D) payroll taxes.

Question 15

Which of the following is not true of tax loopholes?

Accepted Answer

A) They reduce the progressivity of the federal income tax. 
B) They encourage particular patterns of behavior. 
C) They include exemption of interest earned on municipal bonds. 
D) They reduce excess burdens. 
A) They reduce the progressivity of the federal income tax. 
B) They encourage particular patterns of behavior. 
C) They include exemption of interest earned on municipal bonds. 
D) They reduce excess burdens.

Question 16

The authors of the text suggest that a comprehensive personal income tax with few loopholes would be efficient and equitable. What is their reasoning for this statement?

Accepted Answer

They argue that a personal income tax wi

Question 17

In practice, turning horizontal and vertical equity into tax law

Accepted Answer

A) hasn't been tried. 
B) has been fairly easy. 
C) is resisted by nearly all taxpayers. 
D) has been extremely difficult. 
A) hasn't been tried. 
B) has been fairly easy. 
C) is resisted by nearly all taxpayers. 
D) has been extremely difficult.

Question 18

The United States Social Security system

Accepted Answer

A) pays benefits in direct accordance to what each individual has paid into the system. 
B) has paid the current generation of recipients less in benefits than it paid in payroll taxes. 
C) has paid the current generation of recipients more than it paid in payroll taxes. 
D) paid the earlier generations more and the current generation less than each paid in payroll taxes. 
A) pays benefits in direct accordance to what each individual has paid into the system. 
B) has paid the current generation of recipients less in benefits than it paid in payroll taxes. 
C) has paid the current generation of recipients more than it paid in payroll taxes. 
D) paid the earlier generations more and the current generation less than each paid in payroll taxes.

Question 19

Fiscal federalism refers to

Accepted Answer

A) passing money from one level of government to another. 
B) leaving indirect taxes to the states. 
C) keeping property taxes low. 
D) making all levels of government operate on a "pay as you go" basis. 
A) passing money from one level of government to another. 
B) leaving indirect taxes to the states. 
C) keeping property taxes low. 
D) making all levels of government operate on a "pay as you go" basis.

Question 20

When people alter behavior in response to taxes, which of the following is not true?

Accepted Answer

A) Excess burden is created. 
B) Inefficiency occurs. 
C) Tax shifting might occur. 
D) The excise tax rate can increase. 
A) Excess burden is created. 
B) Inefficiency occurs. 
C) Tax shifting might occur. 
D) The excise tax rate can increase.

Exam 17: Taxation and Resource Allocation

The payroll tax appears to be a proportional tax. In reality, it is

Taxation alters the behavior patterns of individuals.

Vertical equity refers to the idea that

Which of the following is not true?

Some enterprising individuals produce and sell alcoholic beverages without collecting or paying legally required taxes. These "moonshiners" often have to hide their production facilities and hire fast driving delivery personnel to avoid various authorities. These moonshiners

A tax loophole is

The payroll tax system is a proportional tax for all income earners.

Existing loopholes erode the progressivity of the U.S. tax system.

Vertical equity refers to the notion that equally situated individuals should be taxed equally.

"People who make more money should pay higher taxes" is an example of

What is personal income tax? On which principle does the federal government levy this tax?

The federal government receives most of its revenues from

Cities and towns mainly rely for revenue on

Which of the following is not true of tax loopholes?

The authors of the text suggest that a comprehensive personal income tax with few loopholes would be efficient and equitable. What is their reasoning for this statement?

In practice, turning horizontal and vertical equity into tax law

The United States Social Security system

Fiscal federalism refers to

When people alter behavior in response to taxes, which of the following is not true?

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

Externalities, Externaliteis, the Environment, and Natural Resources

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

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