Question 1

Which of the following statements is correct?

Accepted Answer

A) Both tax avoidance and tax evasion are legal. 
B) Both tax avoidance and tax evasion are illegal. 
C) Tax avoidance is legal, whereas tax evasion is illegal. 
D) Tax avoidance is illegal, whereas tax evasion is legal. 
A) Both tax avoidance and tax evasion are legal. 
B) Both tax avoidance and tax evasion are illegal. 
C) Tax avoidance is legal, whereas tax evasion is illegal. 
D) Tax avoidance is illegal, whereas tax evasion is legal.

Question 2

The claim that all citizens should make an "equal sacrifice" to support government programs is usually associated with

Accepted Answer

A) the ability-to-pay principle. 
B) the benefits principle. 
C) efficiency arguments. 
D) regressive tax arguments. 
A) the ability-to-pay principle. 
B) the benefits principle. 
C) efficiency arguments. 
D) regressive tax arguments.

Question 3

A budget deficit

Accepted Answer

A) occurs when government receipts are less than spending. 
B) occurs when government spending is less than receipts. 
C) occurs when government receipts are equal to spending. 
D) is the accumulation of years of government overspending. 
A) occurs when government receipts are less than spending. 
B) occurs when government spending is less than receipts. 
C) occurs when government receipts are equal to spending. 
D) is the accumulation of years of government overspending.

Question 4

An optimal tax is one that minimizes the

Accepted Answer

A) external benefit. 
B) total deadweight loss from the tax. 
C) income taxes. 
D) horizontal equity. 
A) external benefit. 
B) total deadweight loss from the tax. 
C) income taxes. 
D) horizontal equity.

Question 5

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 2003?

Accepted Answer

A) 15% 
B) 27% 
C) 30% 
D) 35% 
A) 15% 
B) 27% 
C) 30% 
D) 35%

Question 6

In order to construct a more complete picture of the economic burden of government across income classes,economists usually

Accepted Answer

A) include both tax payments as well as transfer payments received. 
B) focus only on the tax payments of wealthy tax payers. 
C) limit their analysis to taxes based on the ability-to-pay principle. 
D) focus their analysis on issues of tax efficiency. 
A) include both tax payments as well as transfer payments received. 
B) focus only on the tax payments of wealthy tax payers. 
C) limit their analysis to taxes based on the ability-to-pay principle. 
D) focus their analysis on issues of tax efficiency.

Question 7

The three largest categories of spending by the Federal government in order from first to third would be

Accepted Answer

A) Social Security, income security, and national defense. 
B) national defense, income security, and Social Security. 
C) Social Security, national defense, and income security. 
D) income security, Social Security, and national defense. 
A) Social Security, income security, and national defense. 
B) national defense, income security, and Social Security. 
C) Social Security, national defense, and income security. 
D) income security, Social Security, and national defense.

Question 8

Mark,Kerry,Greg,and Carlos each like Chicago Cubs baseball games.The single-game ticket price for an infield box seat is $50.Mark values a ticket at $70,Kerry at $65,Greg at $60,and Carlos at $55.Suppose that if the government taxes tickets at $5 each,the selling price will rise to $55.A consequence of the tax is that

Accepted Answer

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

Question 9

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 is his total tax due in 2003?

Accepted Answer

A) $3,360 
B) $5,832 
C) $9,792 
D) $13,500 
A) $3,360 
B) $5,832 
C) $9,792 
D) $13,500

Question 10

A value-added tax or VAT is a tax on

Accepted Answer

A) retail purchases only. 
B) wholesale purchases only. 
C) pollution. 
D) all stages of production of a good. 
A) retail purchases only. 
B) wholesale purchases only. 
C) pollution. 
D) all stages of production of a good.

Question 11

The deadweight loss of an income tax is determined by the

Accepted Answer

A) amount of total tax revenue to the government. 
B) marginal tax rate. 
C) average tax rate. 
D) ability-to-pay principle. 
A) amount of total tax revenue to the government. 
B) marginal tax rate. 
C) average tax rate. 
D) ability-to-pay principle.

Question 12

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 average tax rate in 2002?

Accepted Answer

A) 26% 
B) 27.8% 
C) 31.2% 
D) 36% 
A) 26% 
B) 27.8% 
C) 31.2% 
D) 36%

Question 13

Which of the following statements is not correct?

Accepted Answer

A) The U.S.tax burden is high compared to many poor countries. 
B) As nations get richer, their governments typically collect a smaller share of income in taxes. 
C) The U.S.has a higher federal tax burden than Canada or Mexico. 
D) The U.S.tax burden is low compared to many European countries. 
A) The U.S.tax burden is high compared to many poor countries. 
B) As nations get richer, their governments typically collect a smaller share of income in taxes. 
C) The U.S.has a higher federal tax burden than Canada or Mexico. 
D) The U.S.tax burden is low compared to many European countries.

Question 14

Medicaid is

Accepted Answer

A) the government's health plan for the elderly. 
B) the government's health plan for the poor. 
C) another name for Social Security. 
D) Both a and c are correct. 
A) the government's health plan for the elderly. 
B) the government's health plan for the poor. 
C) another name for Social Security. 
D) Both a and c are correct.

Question 15

For state and local governments,sales taxes and property taxes make up approximately

Accepted Answer

A) 17 percent of all receipts. 
B) 20 percent of all receipts. 
C) 37 percent of all receipts. 
D) 57 percent of all receipts. 
A) 17 percent of all receipts. 
B) 20 percent of all receipts. 
C) 37 percent of all receipts. 
D) 57 percent of all receipts.

Question 16

Caroline,John,and Jackie each like historical biographies.The current bestseller costs $25.Caroline values it at $30,John at $28,and Jackie at $26.Suppose that if the government taxes books at $2 each,the selling price will rise to $27.A consequence of the tax is that

Accepted Answer

A) consumer surplus shrinks by $9 and tax revenues increase by $6, so there is a deadweight loss of $3. 
B) consumer surplus shrinks by $6 and tax revenues increase by $6, so there is no deadweight loss. 
C) consumer surplus shrinks by $5 and tax revenues increase by $6, so there is no deadweight loss. 
D) consumer surplus shrinks by $5 and tax revenues increase by $4, so there is a deadweight loss of $1. 
A) consumer surplus shrinks by $9 and tax revenues increase by $6, so there is a deadweight loss of $3. 
B) consumer surplus shrinks by $6 and tax revenues increase by $6, so there is no deadweight loss. 
C) consumer surplus shrinks by $5 and tax revenues increase by $6, so there is no deadweight loss. 
D) consumer surplus shrinks by $5 and tax revenues increase by $4, so there is a deadweight loss of $1.

Question 17

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.Total consumer surplus will fall from

Accepted Answer

A) $4 to $1. 
B) $7 to $4. 
C) $3 to $1. 
D) $7 to $3. 
A) $4 to $1. 
B) $7 to $4. 
C) $3 to $1. 
D) $7 to $3.

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 $3 on each glass of red wine,and the equilibrium price of a glass of red wine increases to $9.How much tax revenue is collected?

Accepted Answer

A) $0 
B) $3 
C) $6 
D) $9 
A) $0 
B) $3 
C) $6 
D) $9

Question 19

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.How much total consumer surplus do Kyle and Keith get?

Accepted Answer

A) $2 
B) $4 
C) $6 
D) $8 
A) $2 
B) $4 
C) $6 
D) $8

Question 20

Incentives to work and save are reduced when

Accepted Answer

A) income taxes are higher. 
B) consumption taxes replace income taxes. 
C) corrective taxes are implemented. 
D) All of the above are correct. 
A) income taxes are higher. 
B) consumption taxes replace income taxes. 
C) corrective taxes are implemented. 
D) All of the above are correct.

Exam 12: The Design of the Tax System

Which of the following statements is correct?

The claim that all citizens should make an "equal sacrifice" to support government programs is usually associated with

A budget deficit

An optimal tax is one that minimizes the

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 2003?

In order to construct a more complete picture of the economic burden of government across income classes,economists usually

The three largest categories of spending by the Federal government in order from first to third would be

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 is his total tax due in 2003?

A value-added tax or VAT is a tax on

The deadweight loss of an income tax is determined by the

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 average tax rate in 2002?

Which of the following statements is not correct?

Medicaid is

For state and local governments,sales taxes and property taxes make up approximately

Caroline,John,and Jackie each like historical biographies.The current bestseller costs $25.Caroline values it at $30,John at $28,and Jackie at $26.Suppose that if the government taxes books at $2 each,the selling price will rise to $27.A consequence of the tax is that

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.Total consumer surplus will fall from

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.How much total consumer surplus do Kyle and Keith get?

Incentives to work and save are reduced when

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

Filters