Question 1

Changing the basis of taxation from income earned to amount spent will

Accepted Answer

A) necessarily reduce tax revenues. 
B) lower effective interest rates on savings. 
C) distort incentives to earn income. 
D) eliminate disincentives to save. 
A) necessarily reduce tax revenues. 
B) lower effective interest rates on savings. 
C) distort incentives to earn income. 
D) eliminate disincentives to save.

Question 2

When taxes are imposed on a commodity,

Accepted Answer

A) there is never a deadweight loss. 
B) some consumers alter their consumption by not purchasing the taxed commodity. 
C) tax revenue will rise by the amount of the tax multiplied by the before-tax level of consumption. 
D) the taxes do not distort incentives. 
A) there is never a deadweight loss. 
B) some consumers alter their consumption by not purchasing the taxed commodity. 
C) tax revenue will rise by the amount of the tax multiplied by the before-tax level of consumption. 
D) the taxes do not distort incentives.

Question 3

According to the benefits principle,it is fair for people to pay taxes based on their ability to shoulder the tax burden.

Accepted Answer

A) True 
 B)False

Question 4

State and local government spending on public welfare includes

Accepted Answer

A) trash removal. 
B) transfer payments to the poor. 
C) libraries. 
D) road repairs. 
A) trash removal. 
B) transfer payments to the poor. 
C) libraries. 
D) road repairs.

Question 5

Senator Foghorn promised during his campaign for re-election that he would support family values and end the marriage tax.He also promised to make the rich pay their fair share in taxes,so he would make the income tax more progressive.In addition,he promised that all couples with the same income would pay the same tax and that people with no income would not be taxed.Can Senator Foghorn keep all of his promises?

Accepted Answer

A) Yes, as long as he makes sure that the average tax rate remains lower than the marginal tax rate. 
B) Yes, as long as he makes sure that the marginal tax rate remains lower than the average tax rate. 
C) Yes, as long as the highest marginal tax rate on married couples is no higher than the highest marginal tax rate on individuals. 
D) No, the promises cannot all be met at the same time. 
A) Yes, as long as he makes sure that the average tax rate remains lower than the marginal tax rate. 
B) Yes, as long as he makes sure that the marginal tax rate remains lower than the average tax rate. 
C) Yes, as long as the highest marginal tax rate on married couples is no higher than the highest marginal tax rate on individuals. 
D) No, the promises cannot all be met at the same time.

Question 6

Table 12-5
  
-Refer to Table 12-5.What is the marginal tax rate for a person who makes $60,000?

Accepted Answer

A) 20% 
B) 30% 
C) 40% 
D) 50% 
A) 20% 
B) 30% 
C) 40% 
D) 50%

Question 7

If Nebraska imposed a tax on milk of 10 cents per gallon,

Accepted Answer

A) this is an excise tax. 
B) this is an income tax. 
C) tax revenue will fall. 
D) the supply of milk will rise. 
A) this is an excise tax. 
B) this is an income tax. 
C) tax revenue will fall. 
D) the supply of milk will rise.

Question 8

Which of the following tax systems is the most fair?

Accepted Answer

A) proportional taxes 
B) regressive taxes 
C) progressive taxes 
D) There is no objective way to assess fairness among the three systems. 
A) proportional taxes 
B) regressive taxes 
C) progressive taxes 
D) There is no objective way to assess fairness among the three systems.

Question 9

Goals of efficiency and equity in tax policy are

Accepted Answer

A) complementary in most countries. 
B) necessary for application of the ability-to-pay principle. 
C) often in conflict with each other. 
D) easier to achieve when tax codes are complex. 
A) complementary in most countries. 
B) necessary for application of the ability-to-pay principle. 
C) often in conflict with each other. 
D) easier to achieve when tax codes are complex.

Question 10

A tax system with little deadweight loss and a small administrative burden would be described as

Accepted Answer

A) equitable. 
B) communistic. 
C) capitalistic. 
D) efficient. 
A) equitable. 
B) communistic. 
C) capitalistic. 
D) efficient.

Question 11

Sue earns income of $80,000 per year.Her average tax rate is 40 percent.Sue paid $4,500 in taxes on the first $30,000 she earned.What was the marginal tax rate on the rest of her income?

Accepted Answer

A) 15 percent 
B) 32 percent 
C) 40 percent 
D) 55 percent 
A) 15 percent 
B) 32 percent 
C) 40 percent 
D) 55 percent

Question 12

A budget deficit occurs when government receipts fall short of government spending.

Accepted Answer

A) True 
 B)False

Question 13

In practice,the U.S.income tax system is filled with special provisions that alter a family's tax based on its specific circumstances.

Accepted Answer

A) True 
 B)False

Question 14

Why do some policymakers support a consumption tax rather than an earnings tax?

Accepted Answer

A) Because the average tax rate would be lower under a consumption tax. 
B) Because a consumption tax would encourage people to save earned income. 
C) Because a consumption tax would raise more revenues than an income tax. 
D) Because the marginal tax rate would be higher under an earnings tax. 
A) Because the average tax rate would be lower under a consumption tax. 
B) Because a consumption tax would encourage people to save earned income. 
C) Because a consumption tax would raise more revenues than an income tax. 
D) Because the marginal tax rate would be higher under an earnings tax.

Question 15

Table 12-2
United States Income Tax Rates for a Single Individual, 2002 and 2003.
  
-Refer to Table 12-2.What type of tax structure did the United States have in 2002 for single individuals?

Accepted Answer

A) a proportional tax structure 
B) a regressive tax structure 
C) a progressive tax structure 
D) a lump-sum tax structure 
A) a proportional tax structure 
B) a regressive tax structure 
C) a progressive tax structure 
D) a lump-sum tax structure

Question 16

The flypaper theory of tax incidence

Accepted Answer

A) ignores the indirect effects of taxes. 
B) assumes that most taxes should be "stuck on " the rich. 
C) says that once a tax has been imposed, there is little chance of it changing, so in essence people are stuck with it. 
D) suggests that taxes are like flies because they are everywhere and will never go away. 
A) ignores the indirect effects of taxes. 
B) assumes that most taxes should be "stuck on " the rich. 
C) says that once a tax has been imposed, there is little chance of it changing, so in essence people are stuck with it. 
D) suggests that taxes are like flies because they are everywhere and will never go away.

Question 17

The idea that people in equal conditions should pay equal taxes is referred to as

Accepted Answer

A) horizontal equity. 
B) vertical equity. 
C) the ability-to-pay principle. 
D) the marriage tax. 
A) horizontal equity. 
B) vertical equity. 
C) the ability-to-pay principle. 
D) the marriage tax.

Question 18

Kyle places a $10 value on a glass of red wine,and Keith places an $8 value on it.If there is no tax on glasses of red wine,the price of a glass of red wine reflects the cost of making it.The equilibrium price for a glass of red wine is $6.Suppose the government levies a tax of $2 on each glass of red wine,and the equilibrium price of a glass of red wine increases to $8.How much tax revenue is collected?

Accepted Answer

A) $0 
B) $2 
C) $4 
D) $6 
A) $0 
B) $2 
C) $4 
D) $6

Question 19

The administrative burden of any tax system is part of the inefficiency it creates.

Accepted Answer

A) True 
 B)False

Question 20

Table 12-7
  
-Refer to Table 12-7.What is the marginal tax rate for a person who makes $120,000?

Accepted Answer

A) 25% 
B) 35% 
C) 45% 
D) 60% 
A) 25% 
B) 35% 
C) 45% 
D) 60%

Exam 12: The Design of the Tax System

Changing the basis of taxation from income earned to amount spent will

When taxes are imposed on a commodity,

According to the benefits principle,it is fair for people to pay taxes based on their ability to shoulder the tax burden.

State and local government spending on public welfare includes

Table 12-5 -Refer to Table 12-5.What is the marginal tax rate for a person who makes $60,000?

If Nebraska imposed a tax on milk of 10 cents per gallon,

Which of the following tax systems is the most fair?

Goals of efficiency and equity in tax policy are

A tax system with little deadweight loss and a small administrative burden would be described as

Sue earns income of $80,000 per year.Her average tax rate is 40 percent.Sue paid $4,500 in taxes on the first $30,000 she earned.What was the marginal tax rate on the rest of her income?

A budget deficit occurs when government receipts fall short of government spending.

In practice,the U.S.income tax system is filled with special provisions that alter a family's tax based on its specific circumstances.

Why do some policymakers support a consumption tax rather than an earnings tax?

Table 12-2 United States Income Tax Rates for a Single Individual, 2002 and 2003. -Refer to Table 12-2.What type of tax structure did the United States have in 2002 for single individuals?

The flypaper theory of tax incidence

The idea that people in equal conditions should pay equal taxes is referred to as

The administrative burden of any tax system is part of the inefficiency it creates.

Table 12-7 -Refer to Table 12-7.What is the marginal tax rate for a person who makes $120,000?

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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