Question 1

An efficient tax system is one that imposes small deadweight losses and small administrative burdens.

Accepted Answer

A) True 
 B)False

Question 2

If a tax system is designed so that individuals with higher incomes pay more in taxes than individuals with lower incomes,the system achieves vertical equity.

Accepted Answer

A) True 
 B)False

Question 3

A lump-sum tax

Accepted Answer

A) is most frequently used to tax real property. 
B) does not distort incentives. 
C) distorts incentives more than any other type of tax. 
D) is the most fair tax. 
A) is most frequently used to tax real property. 
B) does not distort incentives. 
C) distorts incentives more than any other type of tax. 
D) is the most fair tax.

Question 4

Tax evasion is legal,but tax avoidance is illegal.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not an advantage of a lump-sum tax in comparison to other types of taxes?

Accepted Answer

A) It would not cause deadweight loss. 
B) It imposes a minimal administrative burden on taxpayers. 
C) It is more equitable. 
D) It is more efficient. 
A) It would not cause deadweight loss. 
B) It imposes a minimal administrative burden on taxpayers. 
C) It is more equitable. 
D) It is more efficient.

Question 6

Suppose that the government collected taxes in the following fashion: people who earn less than $50,000 pay 25 percent in taxes,people who earn between $50,000 and $100,000 pay 35 percent in taxes,people who earn between $100,000 and $200,000 pay 30 percent in taxes,and people who earn more than $200,000 pay 28 percent in taxes.Which of the following statements is not correct?

Accepted Answer

A) The tax system is proportional for income levels less than $50,000 and regressive for income levels above $50,000. 
B) The tax system is regressive for income levels less than $100,000 and progressive for income levels above $100,000. 
C) The tax system is progressive for income levels less than $100,000 and regressive for income levels above $100,000. 
D) The tax system is progressive for income levels less than $50,000 and proportional for income levels above $100,000. 
A) The tax system is proportional for income levels less than $50,000 and regressive for income levels above $50,000. 
B) The tax system is regressive for income levels less than $100,000 and progressive for income levels above $100,000. 
C) The tax system is progressive for income levels less than $100,000 and regressive for income levels above $100,000. 
D) The tax system is progressive for income levels less than $50,000 and proportional for income levels above $100,000.

Question 7

The federal government finances budget deficits by

Accepted Answer

A) selling stock, much like a corporation. 
B) printing additional currency. 
C) borrowing from the public. 
D) raising property taxes. 
A) selling stock, much like a corporation. 
B) printing additional currency. 
C) borrowing from the public. 
D) raising property taxes.

Question 8

Some states do not have a state income tax.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is correct?

Accepted Answer

A) Equity is more important than efficiency as a goal of the tax system. 
B) Efficiency is more important than equity as a goal of the tax system. 
C) Both equity and efficiency are important goals of the tax system. 
D) Neither equity nor efficiency is an important goal of the tax system. 
A) Equity is more important than efficiency as a goal of the tax system. 
B) Efficiency is more important than equity as a goal of the tax system. 
C) Both equity and efficiency are important goals of the tax system. 
D) Neither equity nor efficiency is an important goal of the tax system.

Question 10

Martavius faces a progressive federal income tax structure that has the following marginal tax rates: 0 percent on the first $10,000,10 percent on the next $10,000,15 percent on the next $10,000,25 percent on the next $10,000,and 50 percent on all additional income.In addition,he must pay 5 percent of his income in state income tax and 15.3 percent of his labor income in federal payroll taxes.Marcus earns $70,000 per year in salary and another $20,000 per year in non-labor income.What is his average tax rate,and what is his marginal tax rate on his salary?

Accepted Answer

A) His average tax rate is 17.19 percent, and the marginal tax rate on his salary is 55 percent. 
B) His average tax rate is 50.23 percent, and the marginal tax rate on his salary is 70.3 percent. 
C) His average tax rate is 53.63 percent, and the marginal tax rate on his salary is 70.3 percent. 
D) His average tax rate is 55.79 percent, and the marginal tax rate on his salary is 70.3 percent. 
A) His average tax rate is 17.19 percent, and the marginal tax rate on his salary is 55 percent. 
B) His average tax rate is 50.23 percent, and the marginal tax rate on his salary is 70.3 percent. 
C) His average tax rate is 53.63 percent, and the marginal tax rate on his salary is 70.3 percent. 
D) His average tax rate is 55.79 percent, and the marginal tax rate on his salary is 70.3 percent.

Question 11

Most health care economists believe that it will be very difficult to stem the rise in health care costs because

Accepted Answer

A) government intervention is unpopular with most citizens, especially the elderly. 
B) improvements in medical technology have not kept pace with technological improvements in other sectors of the economy. 
C) increased competition will increase rather than reduce costs. 
D) medical advances are providing better ways to extend and improve human lives but at very expensive costs. 
A) government intervention is unpopular with most citizens, especially the elderly. 
B) improvements in medical technology have not kept pace with technological improvements in other sectors of the economy. 
C) increased competition will increase rather than reduce costs. 
D) medical advances are providing better ways to extend and improve human lives but at very expensive costs.

Question 12

Because of Iceland's tax holiday in 1987 there was a

Accepted Answer

A) temporary decrease in total work hours. 
B) permanent decrease in total work hours. 
C) permanent increase in both GDP and total work hours. 
D) temporary increase in both GDP and total work hours. 
A) temporary decrease in total work hours. 
B) permanent decrease in total work hours. 
C) permanent increase in both GDP and total work hours. 
D) temporary increase in both GDP and total work hours.

Question 13

Table 12-2
United States Income Tax Rates for a Single Individual, 2002 and 2003.
  
-Refer to Table 12-2.Surbhi is a single person whose taxable income is $150,000 a year.By how much is her income tax bill lowered because of the change in the tax rates between 2002 and 2003?

Accepted Answer

A) $648.65 
B) $2,000 
C) $2,126.50 
D) $8,152.75 
A) $648.65 
B) $2,000 
C) $2,126.50 
D) $8,152.75

Question 14

Larry faces a progressive tax structure that has the following marginal tax rates: 0 percent on the first $10,000,10 percent on the next $10,000,15 percent on the next $10,000,25 percent on the next $10,000,and 50 percent on all additional income.If Larry earns $75,000,what is his average tax rate?

Accepted Answer

A) 20 percent 
B) 25 percent 
C) 30 percent 
D) 36.67 percent 
A) 20 percent 
B) 25 percent 
C) 30 percent 
D) 36.67 percent

Question 15

Taxes on specific goods such as cigarettes,gasoline,and alcoholic beverages are called

Accepted Answer

A) sales taxes. 
B) excise taxes. 
C) social insurance taxes. 
D) consumption taxes. 
A) sales taxes. 
B) excise taxes. 
C) social insurance taxes. 
D) consumption taxes.

Question 16

Poor countries such as India and Pakistan usually have low tax burdens.

Accepted Answer

A) True 
 B)False

Question 17

Deadweight losses represent the

Accepted Answer

A) inefficiency that taxes create. 
B) shift in benefit from producers to consumers. 
C) part of consumer and producer surplus that is now revenue to the government. 
D) loss in profit to producers when quantity demanded falls as a result of higher prices. 
A) inefficiency that taxes create. 
B) shift in benefit from producers to consumers. 
C) part of consumer and producer surplus that is now revenue to the government. 
D) loss in profit to producers when quantity demanded falls as a result of higher prices.

Question 18

The "flypaper theory" of taxation suggests that

Accepted Answer

A) the individual or corporation that actually pays the tax is able to shift the burden of the tax to others. 
B) the benefits principle of taxation is not a viable option for policymakers. 
C) taxes are never paid by the most wealthy citizens. 
D) the individual or corporation who actually pays the tax cannot share the burden of the tax. 
A) the individual or corporation that actually pays the tax is able to shift the burden of the tax to others. 
B) the benefits principle of taxation is not a viable option for policymakers. 
C) taxes are never paid by the most wealthy citizens. 
D) the individual or corporation who actually pays the tax cannot share the burden of the tax.

Question 19

Taxes create deadweight losses because they

Accepted Answer

A) reduce profits of firms. 
B) distort incentives. 
C) cause prices to rise. 
D) create revenue for the government. 
A) reduce profits of firms. 
B) distort incentives. 
C) cause prices to rise. 
D) create revenue for the government.

Question 20

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.

Exam 12: The Design of the Tax System

An efficient tax system is one that imposes small deadweight losses and small administrative burdens.

If a tax system is designed so that individuals with higher incomes pay more in taxes than individuals with lower incomes,the system achieves vertical equity.

A lump-sum tax

Tax evasion is legal,but tax avoidance is illegal.

Which of the following is not an advantage of a lump-sum tax in comparison to other types of taxes?

The federal government finances budget deficits by

Some states do not have a state income tax.

Which of the following statements is correct?

Most health care economists believe that it will be very difficult to stem the rise in health care costs because

Because of Iceland's tax holiday in 1987 there was a

Table 12-2 United States Income Tax Rates for a Single Individual, 2002 and 2003. -Refer to Table 12-2.Surbhi is a single person whose taxable income is $150,000 a year.By how much is her income tax bill lowered because of the change in the tax rates between 2002 and 2003?

Larry faces a progressive tax structure that has the following marginal tax rates: 0 percent on the first $10,000,10 percent on the next $10,000,15 percent on the next $10,000,25 percent on the next $10,000,and 50 percent on all additional income.If Larry earns $75,000,what is his average tax rate?

Taxes on specific goods such as cigarettes,gasoline,and alcoholic beverages are called

Poor countries such as India and Pakistan usually have low tax burdens.

Deadweight losses represent the

The "flypaper theory" of taxation suggests that

Taxes create deadweight losses because they

Many economists believe that

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

Supply, demand, and Government Policies

Consumers, producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

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 Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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