Question 1

Who observed that "in this world nothing is certain but death and taxes"?

Accepted Answer

A) Mark Twain 
B) P.T.Barnum 
C) Ben Franklin 
D) Richard Nixon 
A) Mark Twain 
B) P.T.Barnum 
C) Ben Franklin 
D) Richard Nixon

Question 2

Suppose that in 2012 the average citizen's federal tax bill is $4,872,and total federal spending is $6,532 per person.In 2012,the federal government will have

Accepted Answer

A) a budget surplus. 
B) a budget deficit. 
C) horizontal equity. 
D) vertical equity. 
A) a budget surplus. 
B) a budget deficit. 
C) horizontal equity. 
D) vertical equity.

Question 3

Most people agree that the tax system

Accepted Answer

A) should be both efficient and equitable. 
B) cannot raise enough revenue to cover government expenditures. 
C) would raise more revenue if tax rates were lowered. 
D) should be rewritten to require everyone to pay the same percentage of income in taxes. 
A) should be both efficient and equitable. 
B) cannot raise enough revenue to cover government expenditures. 
C) would raise more revenue if tax rates were lowered. 
D) should be rewritten to require everyone to pay the same percentage of income in taxes.

Question 4

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.What happened to her average tax rate between 2002 and 2003?

Accepted Answer

A) It increased. 
B) It decreased. 
C) It did not change. 
D) We do not have enough information to answer this question. 
A) It increased. 
B) It decreased. 
C) It did not change. 
D) We do not have enough information to answer this question.

Question 5

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 6

Horizontal equity in taxation refers to the idea that people

Accepted Answer

A) in unequal conditions should be treated differently. 
B) in equal conditions should pay equal taxes. 
C) should be taxed according to their ability to pay. 
D) should receive government benefits according to how much they have been taxed. 
A) in unequal conditions should be treated differently. 
B) in equal conditions should pay equal taxes. 
C) should be taxed according to their ability to pay. 
D) should receive government benefits according to how much they have been taxed.

Question 7

The deadweight loss of a tax is

Accepted Answer

A) the reduction in economic welfare of taxpayers that exceeds the revenue raised by the government. 
B) the improved efficiency created as people reallocate resources according to the tax incentive rather than the true costs and benefits. 
C) the loss in tax revenues. 
D) Both a and b are correct. 
A) the reduction in economic welfare of taxpayers that exceeds the revenue raised by the government. 
B) the improved efficiency created as people reallocate resources according to the tax incentive rather than the true costs and benefits. 
C) the loss in tax revenues. 
D) Both a and b are correct.

Question 8

Which of the following statements is not correct?

Accepted Answer

A) All states have state income taxes, but the percentages vary widely. 
B) Sales taxes and property taxes are important revenue sources for state and local governments. 
C) Medicare spending has increased because the percentage of the population that is elderly has increased, as has the cost of health care compared to cost of other goods and services. 
D) A budget deficit occurs when government spending exceeds government receipts. 
A) All states have state income taxes, but the percentages vary widely. 
B) Sales taxes and property taxes are important revenue sources for state and local governments. 
C) Medicare spending has increased because the percentage of the population that is elderly has increased, as has the cost of health care compared to cost of other goods and services. 
D) A budget deficit occurs when government spending exceeds government receipts.

Question 9

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.What is her marginal tax rate in 2002?

Accepted Answer

A) 15% 
B) 28% 
C) 31% 
D) 36% 
A) 15% 
B) 28% 
C) 31% 
D) 36%

Question 10

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 11

The benefits principle is used to justify

Accepted Answer

A) property taxes. 
B) gasoline taxes. 
C) "sin" taxes on cigarettes and alcoholic beverages. 
D) personal income taxes. 
A) property taxes. 
B) gasoline taxes. 
C) "sin" taxes on cigarettes and alcoholic beverages. 
D) personal income taxes.

Question 12

Table 12-2
United States Income Tax Rates for a Single Individual, 2002 and 2003.
  
-Refer to Table 12-2.Costa is a single person whose taxable income is $50,000 a year.What happened to his marginal tax rate between 2002 and 2003?

Accepted Answer

A) It increased. 
B) It decreased. 
C) It did not change. 
D) We do not have enough information to answer this question. 
A) It increased. 
B) It decreased. 
C) It did not change. 
D) We do not have enough information to answer this question.

Question 13

Table 12-4
  
-Refer to Table 12-4.Suppose that the government imposes a $2 tax on delights,causing the price to increase from $5.00 to $7.00.Deadweight loss arises because

Accepted Answer

A) Jennifer will pay more tax as a percentage of her value of delights than Brad. 
B) Brad must pay the $2.00 tax from his consumer surplus. 
C) Brad will have to pay a higher price for delights. 
D) Jennifer will leave the market. 
A) Jennifer will pay more tax as a percentage of her value of delights than Brad. 
B) Brad must pay the $2.00 tax from his consumer surplus. 
C) Brad will have to pay a higher price for delights. 
D) Jennifer will leave the market.

Question 14

When comparing the tax burden of several major countries,the United States's tax burden is

Accepted Answer

A) the highest. 
B) in the top 20 percent. 
C) in the middle. 
D) near the bottom. 
A) the highest. 
B) in the top 20 percent. 
C) in the middle. 
D) near the bottom.

Question 15

When the government taxes labor earnings we can expect people to

Accepted Answer

A) work more so they can keep the same standard of living. 
B) work less and enjoy more leisure. 
C) quit their present job and find one that pays better. 
D) stop working altogether and go on welfare. 
A) work more so they can keep the same standard of living. 
B) work less and enjoy more leisure. 
C) quit their present job and find one that pays better. 
D) stop working altogether and go on welfare.

Question 16

A lump-sum tax minimizes deadweight loss.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

The U.S.tax burden is high compared to many European countries,but is low compared to many other nations in the world.

Accepted Answer

A) True 
 B)False

Question 19

Table 12-7
  
-Refer to Table 12-7.What is the marginal tax rate for a person who makes $37,000?

Accepted Answer

A) 9.25% 
B) 20% 
C) 25% 
D) 40% 
A) 9.25% 
B) 20% 
C) 25% 
D) 40%

Question 20

Which of the following statements about a flat tax rate on personal income is correct?

Accepted Answer

A) A flat tax raises more revenue that a regressive tax. 
B) A flat tax removes the incentives for tax avoidance through loopholes and other mechanisms. 
C) Estonia and Russia have abandoned the use of a flat tax because they were unable to administer it. 
D) When a flat tax rate is combined with a threshold that exempts some income, the rich will pay less under a flat tax system than they do under the present U.S.system. 
A) A flat tax raises more revenue that a regressive tax. 
B) A flat tax removes the incentives for tax avoidance through loopholes and other mechanisms. 
C) Estonia and Russia have abandoned the use of a flat tax because they were unable to administer it. 
D) When a flat tax rate is combined with a threshold that exempts some income, the rich will pay less under a flat tax system than they do under the present U.S.system.

Exam 12: The Design of the Tax System

Who observed that "in this world nothing is certain but death and taxes"?

Suppose that in 2012 the average citizen's federal tax bill is $4,872,and total federal spending is $6,532 per person.In 2012,the federal government will have

Most people agree that the tax system

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.What happened to her average tax rate between 2002 and 2003?

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

Horizontal equity in taxation refers to the idea that people

The deadweight loss of a tax is

Which of the following statements is not correct?

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.What is her marginal tax rate in 2002?

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.

The benefits principle is used to justify

Table 12-2 United States Income Tax Rates for a Single Individual, 2002 and 2003. -Refer to Table 12-2.Costa is a single person whose taxable income is $50,000 a year.What happened to his marginal tax rate between 2002 and 2003?

Table 12-4 -Refer to Table 12-4.Suppose that the government imposes a $2 tax on delights,causing the price to increase from $5.00 to $7.00.Deadweight loss arises because

When comparing the tax burden of several major countries,the United States's tax burden is

When the government taxes labor earnings we can expect people to

A lump-sum tax minimizes deadweight loss.

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

The U.S.tax burden is high compared to many European countries,but is low compared to many other nations in the world.

Table 12-7 -Refer to Table 12-7.What is the marginal tax rate for a person who makes $37,000?

Which of the following statements about a flat tax rate on personal income is correct?

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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